Final answer:
Stockholders' equity consists of contributed capital and retained earnings, not dividends paid; dividends are a distribution of profits and do not remain as part of equity once distributed.
Step-by-step explanation:
The statement that stockholders' equity is composed of three parts: contributed capital, earnings retained in the business, and dividends paid is false.
Stockholders' equity is actually made up of two main components: contributed capital and retained earnings. Contributed capital represents the funds that shareholders invest in the company by purchasing shares of stock.
Retained earnings refer to the cumulative amount of profits that have been reinvested in the company rather than distributed to shareholders as dividends.
Dividends paid out to shareholders are a distribution of profits, and once they are paid, they no longer form part of the stockholders' equity.