Rick and Joe Get Together and Start a Mortgage Brokerage

question 197

Multiple Choice

Rick and Joe get together and start a mortgage brokerage business. They each contribute $25,000 of capital to the business. After the first year of operation, the total owners' equity is listed as $60,000. Most likely, the additional $10,000 of owners' equity is

• A) common stock.
• B) long-term liabilities.
• C) current liabilities.
• D) retained earnings.
• E) a bank loan.

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Definitions:

Prepaid Freight

Costs paid by a shipper in advance for shipment of goods, indicating that the sender bears the freight charges.

Cash Discount

A reduction in the invoice price offered to buyers as an incentive for early payment.

Wholesalers

Companies that sell merchandise to other businesses rather than to the public.

Credit Terms

Terms for payment on account by the buyer to the seller.