2.12 Chapter 2 Review Questions

 

Chapter 2: Review Questions

  1. Is the Balance Sheet a “flow” or a “static” statement? Do its numbers get bigger (flow), smaller, or neither, as time over the course of the period passes?
  2. When, if ever, and, if so, how do Balance Sheet numbers revert to zero?
  3. How often, at most, is a public corporation required to issue financial statements?
  4. Are assets debit- or credit-balance accounts?
  5. Are liabilities and equity debit- or credit-balance accounts?
  6. What is the basic accounting equation?
  7. List all typical Current Assets and Current Liabilities.
  8. When a Credit Sale is booked, what Balance Sheet item is affected?
  9. What is meant by “current”?
  10. What are all the equity section accounts?
  11. Rank these items in terms of who gets paid first: Preferred stock dividends – interest on debt – common stock dividends.
  12. When it is said that “dividends have accumulated in arrears,” to which class of stock may we refer – preferred or common? Explain.
  13. Trace the link from Net Income to the Balance Sheet.
  14. What are the tax ramifications to the corporation regarding interest and dividends paid?
  15. To which Capital Component does the word, “Default” apply?
  16. Which Capital Component (Debt, Preferred Stock, Common Stock, or Retained Earnings) is riskiest? Why?
  17. Is Bankruptcy “the end”?
  18. Using the template below, search on-line for a real, true-to-life company’s Balance Sheet and transfer the numbers to the template below. Imagine an airline or a retailer, etc. – perhaps Amazon or Apple. What might their numbers look like?
  19. Who owns a company’s Retained Earnings?

 

 

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Introduction to Financial Analysis Copyright © 2022 by Kenneth S. Bigel is licensed under a Creative Commons Attribution 4.0 International License, except where otherwise noted.

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