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:

Average Tax Rate

The percentage of total income that is paid in taxes.

Interest Income

Earnings from investments in interest-bearing accounts, bonds, or other financial instruments that pay periodic interest.

Eligible Dividends

Dividends designated by a company for tax purposes, which may qualify for preferential tax treatment under certain jurisdictions.

Repurchase

The act of a company buying back its own shares from the marketplace, which can affect the company's share price and capital structure.