SUMMARY

Analysis of income statement and balance sheet: >>

Financial Statement Analysis-FIN621

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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