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Explain why owners' equity includes common stock as a liability even though the shareholders
will not normally be repaid their investments?
Solution
When the corporation is run as a going concern, stockholders do not get the stock value back.
Normally, they get periodic dividend payments from such stock held. However, in case the
company is liquidated, after repaying all creditors, bond-holders and preferred-stock holders, the
common stockholders have to paid the investment they made in common stock of the company.
Therefore, in the balance sheet, common stock is shown as a liability.

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Explain why owners equity includes common stock as a liability eve.pdf

  • 1. Explain why owners' equity includes common stock as a liability even though the shareholders will not normally be repaid their investments? Solution When the corporation is run as a going concern, stockholders do not get the stock value back. Normally, they get periodic dividend payments from such stock held. However, in case the company is liquidated, after repaying all creditors, bond-holders and preferred-stock holders, the common stockholders have to paid the investment they made in common stock of the company. Therefore, in the balance sheet, common stock is shown as a liability.