Finance Chapter 2 Flashcards

Questions and Answers

Which of the following statements are true regarding stockholders' equity? (Select all that apply)

It is sometimes referred to as net assets. (correct)

It is the equity in the assets that remain after subtracting the liabilities. (correct)

It is sometimes referred to as net sales.

It is measured as the fair value of the shareholders' equity interests in the corporation's assets.

It is sometimes referred to as owners' equity. (correct)

It is sometimes referred to as net worth. (correct)

It is sometimes referred to as net income.

Which of the following statements are true about the assets of a firm? (Select all that apply)

The economic benefits associated with assets must be obtained or controlled by the firm. (correct)

Assets must be tangible to be recorded on the balance sheet of a firm.

Accounts receivable are not assets because the cash has not yet been received by a firm.

Assets are probable future economic benefits to the firm. (correct)

Assets represent the amount of resources controlled by the firm. (correct)

Assets result from past transactions or events of the firm. (correct)

Accounts are summarized in financial __, whereas are summarized in accounts.

statements; transactions

Which of the following statements is not true regarding accounts receivable?

Accounts receivable is recorded for the company's gross profit on credit sales. Signup and view all the answers

An entity's earnings for a reporting period are reported on the:

Income statement Signup and view all the answers

Which of the following is a current asset?

Cash Signup and view all the answers

Which of the following statements are true about liabilities of a firm? (Select all that apply)

Accounts payable is an example of liabilities. Signup and view all the answers

Current liabilities:

Are those liabilities that are likely to be paid with cash within one year of the balance sheet date. Signup and view all the answers

Stockholders' equity is the ownership right of the stockholders in the that remain after subtracting the of the corporation.

assets; liabilities Signup and view all the answers

Which statement is true about a balance sheet?

A balance sheet is generally prepared as of the end of a fiscal reporting period. Signup and view all the answers

Which of the following statements are true regarding net assets? (Select all that apply)

Net assets are equal to stockholders' equity. Signup and view all the answers

Study Notes

Stockholders' Equity

Stockholders' equity, also known as net worth, represents the ownership interest of shareholders in a corporation.
It can also be referred to as owners' equity or net assets.
Calculated as the residual interest in the corporation’s assets after deducting liabilities.

Assets of a Firm

Assets are resources resulting from past transactions or events controlled by a firm.
They provide probable future economic benefits and must be obtainable or controlled by the firm.
Accounts receivable, though not yet collected, qualify as assets based on the right to receive cash.

Financial Statements and Accounts

Accounts are summarized in financial statements, while transactions are recorded within accounts.
Financial statements include income statements, balance sheets, cash flow statements, and statements of stockholders' equity.

Accounts Receivable

Accounts receivable represent amounts owed by customers for credit sales and are classified as current assets.
They do not represent gross profit; rather, they reflect the outstanding amounts to be collected from sales.

Earnings Reporting

An entity's earnings for a specific reporting period are reported in the income statement, detailing revenues and expenses.

Current Assets

Current assets include items expected to provide economic benefits within one year, primarily cash.
Other forms of capital assets, like land and equipment, are not classified as current assets.

Liabilities of a Firm

Liabilities signify probable future sacrifices of economic benefits and are not classified as owners' equity.
Accounts payable exemplifies a liability, reflecting obligations to pay for goods or services received.

Current Liabilities

Current liabilities encompass obligations expected to be settled with cash within one year from the balance sheet date.
Examples include accounts payable and short-term debt, distinguishing them from long-term liabilities.

Balance Sheet Characteristics

A balance sheet is typically prepared at the end of a fiscal reporting period, showing the company’s financial position at that point in time.
It does not report revenues or expenses but reflects assets, liabilities, and shareholders' equity.

Net Assets

Net assets are defined as assets minus liabilities and are synonymous with stockholders' equity.
They serve as a measure of net worth for a firm, highlighting the financial health and stability of the entity.

Description

Test your knowledge on stockholders' equity with these flashcards from Chapter 2. Identify which statements about stockholders' equity are true or false. Enhance your understanding of key financial concepts related to equity.