Which of the following items are components of shareholders' equity on a corporation's balance sheet?

• A. Common stock
• B. Retained earnings
• C. Accounts payable
• D. Bonds payable

Answer: (B)

Verified step by step guidance

1. Understand the concept of shareholders' equity: Shareholders' equity represents the owners' claim on the assets of a corporation after all liabilities have been deducted. It is a key section of the balance sheet.
2. Identify the components of shareholders' equity: Common components include common stock, preferred stock, retained earnings, and additional paid-in capital. These items reflect the ownership interest and accumulated profits of the corporation.
3. Analyze the given items: Common stock and retained earnings are part of shareholders' equity because they represent ownership interest and accumulated profits, respectively. Accounts payable and bonds payable, however, are liabilities and not part of shareholders' equity.
4. Classify each item: Common stock is equity issued to shareholders, retained earnings are profits retained in the business, accounts payable are short-term liabilities, and bonds payable are long-term liabilities.
5. Conclude the correct components: Based on the analysis, the correct components of shareholders' equity on the balance sheet are common stock and retained earnings.