Question 1

Accounting information is used by creditors to decide whether to invest in a company's stock.Creditors lend money to a company.

Accepted Answer

Creditors use accounting information to assess the creditworthiness of a company and decide whether to lend money, not to invest in a company's stock, which is an action typically taken by investors.

Question 2

If a company reports revenues of $17,000 and expenses of $12,000,then net income equals $5,000.

Accepted Answer

Net income is calculated by subtracting expenses from revenues, so in this case, $17,000 - $12,000 = $5,000.

Question 3

Accounting is a system of maintaining records of a company's operations and communicating that information to decision makers.

Accepted Answer

This statement accurately describes the purpose and function of accounting.

Question 4

The accounting equation shows that a company's resources equal creditors' and owners' claims to those resources.

Accepted Answer

The accounting equation is Assets = Liabilities + Equity. This means that the resources (assets) a company holds must be either financed by creditors (liabilities) or owners (equity), and therefore their claims to those resources are equal.

Question 5

Expenses are regular cash payments by a corporation to its stockholders.Dividends are payments to stockholders.

Accepted Answer

Expenses are not payments to stockholders, they are payments made by the corporation for various operational costs. Dividends are the payments to stockholders.

Question 6

Cash,inventory,supplies,and buildings are examples of liabilities.These are examples of assets.

Accepted Answer

Cash, inventory, supplies, and buildings are examples of assets, not liabilities. Liabilities would include items such as loans, accounts payable, and debts owed.

Question 7

Amounts owed to suppliers,employees,the government in the form of taxes,and utility companies are examples of liabilities.

Accepted Answer

Yes, amounts owed to suppliers, employees, the government in the form of taxes, and utility companies are all examples of liabilities.

Question 8

One of the differences between a partnership and a corporation is that owners of a partnership have limited liability.Stockholders of a corporation have limited liability.

Accepted Answer

The statement is incorrect. Both partners in a partnership and stockholders in a corporation have limited liability.

Question 9

If total assets of a company equal $12,000 and total stockholders' equity equals $4,000,then total liabilities equal $8,000.

Accepted Answer

The accounting equation is assets = liabilities + equity. In this case, the assets and equity are given as $12,000 and $4,000 respectively. Therefore, the liabilities can be calculated as follows:

Liabilities = Assets - Equity 
Liabilities = $12,000 - $4,000 
Liabilities = $8,000

So, the answer is true.

Question 10

The costs related to rent,utilities,and salaries in the current reporting period are examples of liabilities.These are examples of expenses.

Accepted Answer

Liabilities are obligations or debts that a company owes, such as loans or accounts payable. Expenses, on the other hand, refer to the costs incurred in the process of generating revenue, such as rent, utilities, and salaries. Therefore, the costs related to rent, utilities, and salaries in the current reporting period are examples of expenses rather than liabilities.

Question 11

Limited liability means the stockholders are not held personally responsible for the financial obligations of the corporation.

Accepted Answer

Limited liability is a fundamental concept of corporate law, meaning that the shareholders of a corporation are only liable for the amount of their investment in the company and are not personally responsible for its debts and obligations.

Question 12

The difference between revenues and expenses is referred to as net income or net loss.

Accepted Answer

This statement is true. Net income or net loss is the result of subtracting expenses from revenues, as it represents the remaining amount of money earned or lost after all expenses have been paid.

Question 13

The primary functions of financial accounting are to measure business activities of a company and to communicate those measurements to internal parties for decision-making purposes.Financial accounting primarily serves to provide information to external parties.

Accepted Answer

Financial accounting primarily serves to provide information to external parties, such as investors, creditors, and government agencies, rather than internal parties for decision-making purposes.

Question 14

If total liabilities of a company equal $16,000 and total stockholders' equity equals $9,000,then total assets equal $7,000.Total assets = Total liabilities ($16,000)+ Total stockholders' equity ($9,000)= $25,000.

Accepted Answer

Total liabilities ($16,000) + Total stockholders' equity ($9,000) should equal total assets, but the calculation provided results in a total of $25,000 which cannot be correct. Therefore, the statement is false. The correct calculation would be Total assets = Total liabilities ($16,000) + Total stockholders' equity ($9,000) = $25,000.

Question 15

A corporation is an entity that is legally separate from its owners.

Accepted Answer

A corporation is a legal entity that is separate from its owners, meaning it has its own rights, responsibilities, and liabilities. The owners of a corporation are shareholders and they are not personally liable for the corporation's debts or legal obligations.

Question 16

Dividends represent a return of the company's profits to its owners,the stockholders.

Accepted Answer

Dividends are payments made by a company to its shareholders, typically as a distribution of profits. Therefore, dividends represent a return of the company's profits to its owners (the stockholders).

Question 17

Investing activities include the purchase and sale of long-term resources.

Accepted Answer

Investing activities involve the purchase and sale of long-term resources such as property, plant, and equipment or investments in other companies.

Question 18

Financing activities are transactions involving externals sources of funding.

Accepted Answer

Financing activities involve obtaining funds from external sources such as issuing stocks, borrowing from banks, or obtaining loans from bondholders.

Question 19

Operating activities include transactions that relate to the primary operations of the company.

Accepted Answer

Operating activities include things like sales of goods or services, payments to suppliers, employee wages, and other expenses related to the primary operations of the company. These activities are central to the functioning of the business and are therefore considered part of operating activities.

Question 20

Accounting information is used by investors to decide whether to invest in a company's stock.

Accepted Answer

Investors use accounting information such as financial statements and ratios to evaluate a company's financial performance and make investment decisions.

Quiz 1: A Framework for Financial Accounting