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Questions and Answers
Which of the following best describes the balance sheet formula?
Which of the following best describes the balance sheet formula?
- Sales, expenses, and dividends are all found on the income statement.
- A balance sheet lists only what is owned.
- Assets minus liabilities equals net worth. (correct)
- Liabilities plus equity equals assets. (correct)
Issuance of which of the following would most likely increase the leverage in a company's capital structure?
Issuance of which of the following would most likely increase the leverage in a company's capital structure?
- Dividends
- Bonds (correct)
- Retained earnings
- Stocks
What is SSS Corporation's shareholders' equity?
What is SSS Corporation's shareholders' equity?
$410,000
A term used to describe the results of subtracting a corporation's liabilities from its assets is
A term used to describe the results of subtracting a corporation's liabilities from its assets is
How is shareholders' equity computed when reviewing a corporation's financial statements?
How is shareholders' equity computed when reviewing a corporation's financial statements?
What is the highest opinion offered under GAAP?
What is the highest opinion offered under GAAP?
What does it mean if a corporation ends its accounting year on September 30?
What does it mean if a corporation ends its accounting year on September 30?
What is one of the components of a cash flow statement?
What is one of the components of a cash flow statement?
If a company has net income of $1 million and pays dividends of $800,000, what will happen to its retained earnings?
If a company has net income of $1 million and pays dividends of $800,000, what will happen to its retained earnings?
When viewing a corporation's balance sheet, which of the following is NOT included in owner's equity?
When viewing a corporation's balance sheet, which of the following is NOT included in owner's equity?
What is the balance sheet equation?
What is the balance sheet equation?
Which items change when a company pays a cash dividend?
Which items change when a company pays a cash dividend?
The owners' equity portion of a corporation's balance sheet would contain all of the following except?
The owners' equity portion of a corporation's balance sheet would contain all of the following except?
What is the total of cash from operations, investing, and financing as reported on the statement of cash flows?
What is the total of cash from operations, investing, and financing as reported on the statement of cash flows?
Current assets on a corporate balance sheet would include?
Current assets on a corporate balance sheet would include?
Balance sheets do not provide a snapshot of a company's financial position on a given date.
Balance sheets do not provide a snapshot of a company's financial position on a given date.
If a publicly traded corporation was going to sell a wholly-owned subsidiary, what form would be filed?
If a publicly traded corporation was going to sell a wholly-owned subsidiary, what form would be filed?
When a member of the board of directors of a publicly traded company resigns due to disagreement, what must be filed?
When a member of the board of directors of a publicly traded company resigns due to disagreement, what must be filed?
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Study Notes
Balance Sheet Basics
- Balance sheet formula: Assets = Liabilities + Shareholders' Equity
- Assets represent what a company owns, while liabilities denote what it owes.
- Shareholders' equity is calculated as total assets minus total liabilities.
Leverage and Capital Structure
- Issuing bonds increases leverage, as they represent borrowed money, impacting the debt-to-equity ratio.
Shareholders' Equity Calculation
- For SSS Corporation:
- Total assets = $780,000
- Total liabilities = $370,000
- Shareholders' equity = $410,000 ($780,000 - $370,000).
Owners' Equity
- The term for the difference between a corporation's assets and liabilities is owner's equity.
Independent Audits and GAAP
- Publicly-traded corporations must undergo annual independent audits.
- The highest opinion under GAAP is an unqualified opinion.
Fiscal Year Definition
- A corporation that ends its accounting year on September 30 uses a fiscal year.
Cash Flow Statement Components
- Cash flow from investing activities encompasses transactions involving land, buildings, and equipment.
Retained Earnings
- If a company has a net income of $1 million and pays dividends of $800,000, retained earnings will increase by $200,000.
Balance Sheet Insights
- Owner's equity does not include cash; it is calculated from par values of stock, paid-in capital, and retained earnings, minus treasury stock costs.
Cash Position and Cash Flow
- The statement of cash flows reports total cash from operations, investing, and financing as the net change in cash position for the period.
Current Assets Definition
- Current assets on a corporate balance sheet typically include cash and inventory.
Truths About Balance Sheets
- Balance sheets provide a snapshot of a company's financial position on a specific date.
- They illustrate the relationship between assets, liabilities, and stockholders' equity.
SEC Filing Requirements
- If a publicly traded corporation intends to sell a wholly-owned subsidiary, an 8-K form must be filed.
- Any director resigning over operational disagreements requires an 8-K filing with the SEC within 4 business days.
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