Georgia Assessments for the Certification of Educators GACE Practice Test

Owners' equity is comprised of:

1. The amount of the owners' initial investment in the business

2. The owners' unclaimed profits from the business' operation

3. The personal net worth of the owners plus the amount of their initial investment in the business

4. Both B and C

The correct answer is: Both B and C

Owners' equity represents the residual interest of the owners in the assets of the business after deducting liabilities. This concept encompasses various components that contribute to the overall equity stake that owners have in the business. The correct understanding includes unclaimed profits, which represent earnings that have not been distributed to the owners as dividends. This aspect of equity reflects the cumulative profits that the business has retained for reinvestment or other purposes, indicating the financial growth of the company that belongs to the owners. In addition to unclaimed profits, owners' equity also includes the owners' initial investment in the business, as this investment establishes their stake in the company. This initial amount, combined with the retained earnings (unclaimed profits), creates a comprehensive view of the owners' equity. When evaluating the personal net worth of the owners, it is important to recognize that this typically refers to their total assets minus their total liabilities, but it does not directly form a component of the owners' equity in a business context. However, in the context of assessing overall ownership value, the inclusion of personal investment and profits retained within the business supports the rationale for both unclaimed profits and the initial investment as valid contributors to owners' equity. Therefore, the correct understanding aligns with both the retained