Possible Essay Questions Final Exam Posted on: Saturday. May 14, 2016 2:26:31 PM
ID: 2728563 • Letter: P
Question
Possible Essay Questions Final Exam Posted on: Saturday. May 14, 2016 2:26:31 PM PDT Identify the two key financial statements discussed in class that corporations are required to prepare, and describe the type of information found on each. What is ratio analysis? Discuss liquidity, leverage, and profitability ratios. What information can one learn from each of these categories of ratios? What stakeholder group(s) would most likely be interested in each category? Explain the major advantages and disadvantages of issuing stock as a source of long-term financing. The risk/return trade-off is inherent in any investment strategy. What are the five key criteria investors should consider when selecting investment options? Discuss the methods the Fed uses to enact monetary policy and provide an explanation of the effects these methods have on the supply of money. Identify and discuss the six conditions that must be met for a contract to be legally binding. What type of law is tort law? Explain what a tort is as well as the meaning of negligence. final exam possible essay questions.docxExplanation / Answer
1.
Two key Fianancial Statements are:
(i) Statement of REtained Earning:
The heading identifies the name of the entity, the title of the report, and the unit of measure used in the statement. Like the income statement, the statement of retained earnings covers a specified period of time (the accounting period). The statement reports the way that net income and the distribution of dividends affected the company's financial position during the accounting period. Net income earned during the year increases the balance of retained earnings, showing the relationship of the income statement to the balance sheet. The declaration of dividends to the stockholders decreases retained earnings.
The retained earnings equation that describes these relationships is
Begining REtained Earning+Net income-Dividend= Ending REtained Earning
(ii)Statement of Cash flow:
The statement of cash flows (cash flow statement) divides cash inflows and outflows (receipts and payments) into the three primary categories of cash flows in a typical business: cash flows from operating, investing, and financing activities. The heading identifies the name of the entity, the title of the report, and the unit of measure used in the statement. Like the income statement, the cash flow statement covers a specified period of time (the accounting period).
Reported revenues do not always equal cash collected from customers because some sales may be on credit. Also, expenses reported on the income statement may not be equal to the cash paid out during the period because expenses may be incurred in one period and paid for in another. Because the income statement does not provide information concerning cash flows, accountants prepare the statement of cash flows to report inflows and outflows of cash. The cash flow statement equation describes the causes of the change in cash reported on the balance sheet from the end of last period to the end of the current period:
Amount ($)
Cash flow from OPerating activities xx
Cash flow from investing activities xx
Cash flow from Financing Actvities xx
Cash flow for the year xxx
Cash at the begining of the year xxx
Cash at the end of the year xxx
2.
Ratio Analysis is a form of Financial Statement Analysis that is used to obtain a quick indication of a firm's financial performance in several key areas. The ratios are categorized as Short-term Solvency Ratios, Debt Management Ratios, Asset Management Ratios, Profitability Ratios, and Market Value Ratios.