Which one of the following items is NOT a component of contributed capital?

• A. Additional paid-in capital
• B. Preferred stock
• C. Common stock
• D. Retained earnings

Answer: (D)

Verified step by step guidance

1. Understand the concept of contributed capital: Contributed capital refers to the total value of funds that shareholders have directly invested in the company. It includes amounts paid for shares of stock and any additional paid-in capital.
2. Identify the components of contributed capital: Contributed capital typically includes common stock, preferred stock, and additional paid-in capital. These represent the funds contributed by shareholders in exchange for ownership in the company.
3. Clarify the role of retained earnings: Retained earnings are the accumulated profits of a company that have not been distributed as dividends. They are part of stockholders' equity but are not considered contributed capital because they are generated internally by the company rather than contributed by shareholders.
4. Compare the options provided: Additional paid-in capital, preferred stock, and common stock are all components of contributed capital. Retained earnings, however, are not part of contributed capital.
5. Conclude that retained earnings are the correct answer: Retained earnings are excluded from contributed capital because they represent internally generated funds rather than shareholder contributions.