Question 1

Accounts Receivable is an asset that is considered nonmonetary in nature.

Accepted Answer

Accounts Receivable is considered a monetary asset because it represents a specific amount of money that a company expects to receive from its customers for goods or services provided.

Question 2

Net income is another term for revenues.

Accepted Answer

Net income is the amount of revenue left over after subtracting expenses. Therefore, net income is not the same as revenues.

Question 3

The obligation to provide services to another entity is a type of liability.

Accepted Answer

The obligation to provide services to another entity is a type of liability because it represents a commitment or duty to fulfill a certain obligation, which can also be referred to as a debt or obligation owed to another party.

Question 4

Dividends are an example of an expense.

Accepted Answer

Dividends are not considered an expense, but rather a distribution of profits to shareholders.

Question 5

One way of stating the accounting equation is: Assets - Liabilities = Stockholders' Equity.

Accepted Answer

The accounting equation states that Assets (what the business owns) minus Liabilities (what the business owes) equals Stockholders' Equity (the residual interest in the assets after deducting liabilities).

Question 6

Authorized shares of stock refer to the number of shares currently held by the stockholders.

Accepted Answer

Authorized shares of stock refer to the maximum number of shares that a company is allowed to issue as stated in its articles of incorporation. It does not refer to the number of shares currently held by stockholders.

Question 7

The number of authorized shares of stock may be less than the number of outstanding shares.

Accepted Answer

The number of authorized shares is the maximum number of shares a corporation is legally allowed to issue, as specified in its articles of incorporation. The number of outstanding shares can never exceed the number of authorized shares.

Question 8

Inventory is an example of a nonmonetary asset.

Accepted Answer

Inventory is a physical asset and is typically recorded at cost on a company's balance sheet. It is not a monetary asset, such as cash or investments.

Question 9

Equity is increased when net income exceeds dividend distributions.

Accepted Answer

Equity represents the owner's residual interest in the assets of the company after liabilities are deducted. Net income adds value to the company and increases the equity, while dividends distributions reduce the equity. Therefore, if net income exceeds dividend distributions, equity will increase.

Question 10

The management of a corporation is responsible for electing the board of directors.

Accepted Answer

The shareholders of a corporation are responsible for electing the board of directors, not the management.

Question 11

Financial position may be assessed by referring to a balance sheet.

Accepted Answer

This statement is true. The balance sheet provides information on a company's assets, liabilities, and equity, which can be used to assess its financial position.

Question 12

Cash is another term for stockholders' equity.

Accepted Answer

Cash refers to the liquid assets held by a company, while stockholders' equity refers to the amount of assets that shareholders own after liabilities are subtracted. They are two different concepts and not interchangeable.

Question 13

The articles of incorporation may be found in the corporate charter.

Accepted Answer

The articles of incorporation are typically included in the corporate charter, which is a legal document that establishes the existence of a corporation and sets out its basic operating rules and organizational structure.

Question 14

The board of directors carries out the day-to-day operations of a corporation.

Accepted Answer

The day-to-day operations of a corporation are typically carried out by the executive management team, led by the CEO. The board of directors is responsible for overseeing the management team, setting strategic direction, and making important decisions for the company.

Question 15

Stockholders' equity equals assets minus liabilities.

Accepted Answer

Stockholders' equity represents the equity of a company's shareholders and is calculated as the difference between total assets and total liabilities.

Question 16

The board of directors appoints the audit committee,which in turn performs an independent audit of the company's records.

Accepted Answer

The audit committee is indeed appointed by the board of directors, but its role is to oversee the independent audit process, not to perform the audit itself. Independent audits are conducted by external audit firms.

Question 17

Net assets equal stockholders' equity.

Accepted Answer

Net assets refer to the total value of a company's assets after deducting its liabilities. Stockholders' equity, on the other hand, represents the residual interest in the assets of a company after liabilities are deducted. Therefore, net assets equal stockholders' equity.

Question 18

Corporate governance is the oversight of a company's management performance and ethics by its board of directors.

Accepted Answer

Corporate governance is indeed the oversight of a company's management performance and ethics by its board of directors.

Question 19

Creditors' equities is another term for liabilities.

Accepted Answer

Creditors' equities refer to the portion of a company's assets that belong to creditors or lenders, which is also known as liabilities.

Question 20

The economic resources invested in a business by the owners are represented by stockholders' equity.

Accepted Answer

Stockholders' equity represents the portion of a company's assets that are owned by the shareholders, including the economic resources invested in the business by the owners. It includes common stock, preferred stock, retained earnings, and other equity accounts.

Quiz 1: Uses of Accounting Information and the Financial Statements