Question

Which of the following definitions is incorrect?

1) Accumulated other comprehensive income is the cumulative amount of other comprehensive income (or loss) items.
2) Retained earnings is the total amount of corporate net income that has not been distributed to shareholders as dividends.
3) Treasury stock is the amount paid to the corporation by shareholders in excess of the par value of the stock issued.
4) Common stock is the shares of stock that a corporation is authorized to issue as evidence of ownership in that corporation.

Answer 1

The incorrect definition is option 3) Treasury stock is the amount paid to the corporation by shareholders in excess of the par value of the stock issued.

Step-by-step explanation:

The incorrect definition is option 3) Treasury stock is the amount paid to the corporation by shareholders in excess of the par value of the stock issued.

Treasury stock refers to shares of stock that a corporation has bought back from shareholders and is holding as part of its own assets. It does not involve a payment by shareholders to the corporation. The purchase of treasury stock can be done to reduce the number of outstanding shares or for other business purposes.

Example: If a corporation repurchases 1,000 shares of its own stock from shareholders, it will be categorized as treasury stock.