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Financial Statement Analysis

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Financial Statement Analysis-FIN621
VU
Lesson-30
SUMMARY
(Previous Lectures)
Example
·
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)
Example
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.
(Correct)
Example
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)
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