Are these correct?
1. Agency theory examines the relationship between the?
shareholders and the firm's transfer agent.
2. Proper risk-return management means that?
the firm must determine an appropriate trade-off between risk and return.
3. Which of the following is an outflow of cash??
the payment of cash dividends
4. The primary disadvantage of accrual accounting is that?
it does not match revenues and expenses in the period in which they are incurred.
1. Agency theory examines the relationship between the shareholders and the firm's transfer agent.
To confirm if this statement is correct, you can follow these steps:
- Go to a reliable source or textbook on finance or corporate governance.
- Look up the definition and purpose of agency theory.
- Read about the key elements of agency theory, such as the principal-agent relationship, and the roles of shareholders and various agents in a firm (such as managers or transfer agents).
- Compare the information you find to the statement in question.
- If the information aligns with the statement, then it is correct. Otherwise, it is incorrect.
2. Proper risk-return management means that the firm must determine an appropriate trade-off between risk and return.
To check the accuracy of this statement:
- Refer to a reputable finance source or textbook.
- Read about risk-return management and its objectives and principles.
- Look for information on how firms should consider both risk and return when making financial decisions.
- Compare the information found to the statement provided.
- If the information matches the statement, it is correct. Otherwise, it is incorrect.
3. The payment of cash dividends is an outflow of cash.
To verify the validity of this statement:
- Review reputable accounting or finance sources.
- Look for information on cash flows and the definition of cash inflows and outflows.
- Examine the specific types of transactions that result in cash outflows.
- Determine if cash dividend payments are classified as cash outflows based on the information gathered.
- If the information confirms that cash dividends are categorized as outflows, then the statement is correct. Otherwise, it is incorrect.
4. The primary disadvantage of accrual accounting is that it does not match revenues and expenses in the period in which they are incurred.
To confirm the accuracy of this statement:
- Consult reliable accounting sources or textbooks.
- Research the concept of accrual accounting and its key principles.
- Learn about the timing and recognition of revenues and expenses in accrual accounting.
- Assess whether the statement aligns with the explanations and principles found.
- If the information confirms that the statement accurately describes a disadvantage of accrual accounting, then it is correct. Otherwise, it is incorrect.
1. The first statement is incorrect. Agency theory examines the relationship between the shareholders (or owners) of a company and its management. It focuses on the potential conflicts of interest that may arise when owners delegate decision-making authority to managers.
2. The second statement is correct. Proper risk-return management involves finding a balance between the level of risk a company is willing to take and the potential return it expects to receive. Companies aim to maximize return while minimizing risk, but there is always a trade-off between the two.
3. The third statement is correct. The payment of cash dividends to shareholders is an outflow of cash for a company. Dividends are distributed to shareholders as a share of the company's profits or retained earnings.
4. The fourth statement is incorrect. The primary disadvantage of accrual accounting is not that it fails to match revenues and expenses in the period incurred. Accrual accounting records revenues and expenses when they are earned or incurred, regardless of when the cash is actually received or paid. The primary disadvantage of accrual accounting is that it can be more complex and require estimation and judgment, which can introduce potential subjectivity and errors in financial reporting.