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Financial Statement Analysis

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Financial Statement Analysis-FIN621
(Previous Lectures)
When a business is organized as a corporation:
­  Stock holders are liable for the debt of the business only in proportion to their
percentage ownership in stock. (X)
­  Stock holders do not have to pay personal income tax on dividends received because the
corporation is subject to income tax on its earnings. (X)
­  Fluctuations in the market value of outstanding shares of capital stock do not affect the
amount of stock holders' equity shown in the balance sheet. (Correct)
­  Each stock holder has the right to bind the corporation to contracts and to make other
managerial decisions. (X)
Choose the correct answer.
·  Moosa Corporation was organized with authorization to issue 100,000 shares of Re. 1 par value
common stock. 40,000 were issued to Moosa, the company's founder, but at a price of Rs. 5 per
share. No other shares have yet been issued.
­  Moosa owns 40% of the stock holders' equity of the corporation. (X)
­  The corporation should recognize Rs. 160,000 gain in the issuance of these shares. (X)
­  If the balance sheet includes retained earnings of Rs. 50,000, total paid in capital
amounts to Rs. 250,000. (X)
­  In the balance sheet, additional paid in capital account will have Rs. 160,000 balance,
regardless of the profit earned or losses incurred since the organization was organized.
Choose the correct answer.
·  The statement of cash flows is designed to assist users in assessing each of the following except:
­  The ability of the company to remain solvent. (X)
­  In assessing the company's profitability. (Correct)
­  Major source of cash receipt during the period. (X)
­  The reason why net cash flows from operating activities differ from net income. (X)