Question

What is included in a company's paid in capital?

1) Common stock
2) Preferred stock
3) Additional paid-in capital
4) Retained earnings

Answer 1

A company's paid-in capital consists of common stock, preferred stock, and additional paid-in capital. Retained earnings, while important, are not included in the paid-in capital.

Step-by-step explanation:

A company's paid-in capital refers to the amount of money that shareholders have contributed to the company in exchange for stock. It consists of three main components:

1. Common stock: This represents the basic ownership interest in the company and entitles shareholders to voting rights and a share of the company's profits and assets.
2. Preferred stock: This represents a class of stock that typically has certain priority rights over common stock, such as a fixed dividend rate.
3. Additional paid-in capital: This represents the amount of money that shareholders have paid for their shares of stock beyond the par value or stated value of the stock.

Retained earnings, on the other hand, are the accumulated profits that the company has retained and reinvested in the business over time. While retained earnings are an important component of a company's overall equity, they are not considered part of the paid-in capital.