Question

multiple choice question

an accumulated deficit means a company has ______.

• treasury stock that it repurchased at a cost that was higher than the issuance price
• dividends in arrears
• accumulated more net losses than net income
• a contra-asset account due to losses

Explanation:

Define accumulated deficit

An accumulated deficit occurs when a company's cumulative net losses exceed its cumulative net income over time, resulting in a negative balance in the retained earnings account.

Evaluate the options

• Treasury Stock: Repurchasing treasury stock does not create an accumulated deficit.
• Dividends in arrears: This refers to unpaid preferred dividends, not a negative retained earnings balance.
• Accumulated more net losses than net income: This directly defines an accumulated deficit.
• Contra-asset account: Retained earnings (or an accumulated deficit) is a stockholders' equity account, not a contra-asset account.

Answer:

• Treasury Stock that it repurchased at a cost that was higher than the issuance price
• dividends in arrears
• accumulated more net losses than net income (Correct answer)
• a contra-asset account due to losses