1.4: End-of-Chapter Exercises
- Page ID
- 24754
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- What is financial accounting?
- How does financial accounting differ from managerial accounting?
- List the potential users of the information provided by financial accounting.
- What is a corporation?
- How does a business become a corporation?
- Why would a business want to become a corporation?
- What is the board of directors of a corporation?
- Why do individuals or entities choose to invest in the capital stock of corporations?
- How does an investor differ from a creditor?
- What is financial information?
True or False
- ____ Financial accounting helps with decisions made inside an organization.
- ____ Typically, a sole proprietor will be able to raise money easier than a corporation.
- ____ Employees are not users of the information provided by financial accounting.
- ____ The board of directors of a corporation is elected by its shareholders.
- ____ Investors who hold investments in a stock longer than a year may enjoy a tax benefit.
- ____ Corporations are required by law to pay dividends to their shareholders.
- ____ Purchasing stock is typically a riskier investment than opening a savings account.
- ____ Financial information is communicated in monetary terms but may be explained verbally.
- ____ Accountants are the only users of the information provided by financial accounting.
- ____ An entity that loans a company money is referred to as a “shareholder.”
Multiple Choice
- Ramon Sanchez is a loan officer at Washington Bank. He must decide whether or not to loan money to Medlock Corporation. Which of the following would Ramon most likely consider when making this decision?
- Medlock had positive cash flows last year.
- Medlock paid dividends last year.
- Medlock’s stock price increased last year.
- The number of stockholders in Medlock increased last year.
- Which of the following is not a reason an investor would purchase stock in a corporation?
- To receive dividend payments
- To sell the stock for a gain if the share price increases
- To earn a return on their investment
- To participate in the day-to-day operations of the business
- Which of the following would not be considered an example of a decision made using financial accounting information?
- An investor decided to invest in the stock of Rayburn Corporation.
- A credit analyst at Mayfield Corporation rejected a request for credit from Rayburn Corporation.
- A Rayburn Corporation manager decided to increase production of widgets.
- A loan officer at Fairburn Bank chose to grant a loan request made by Rayburn Corporation.
- Which of the following is most likely to have a say in the policy decision of a large corporation?
- A stockholder
- A member of the board of directors
- An employee
- A creditor
- Leon Williams is an investor in Springfield Corporation. On September 1, Year One, he purchased 150 shares of stock at a price of $45 per share. On October 15, Year One, Springfield distributed dividends of $1.50 per share. On December 31, Year One, Springfield’s stock is selling for $47 per share. Which of the following is the value of Leon’s investment on December 31, Year One?
- $6,750
- $6,975
- $7,050
- $7,275
Problems
- Explain how each of the following might use the information provided by the financial accounting of Nguyen Company.
- Bank loan officer considering loaning money to Nguyen Company
- Current employee of Nguyen Company
- Potential employee of Nguyen Company
- Current investor in Nguyen Company
- Potential investor in Nguyen Company
- A credit analyst of company wanting to sell inventory to Nguyen Company
- Mark each of the following with an (F) to indicate if it is financial information or an (N) to indicate if it is nonfinancial information.
- >Metro Corporation has:
- ____ Cash of $4,000,000
- ____ A building that cost $50,000,000
- ____ 2,000 employees
- ____ Inventory worth $16,000,000
- ____ 500 shares of capital stock
- ____ 1,000 trucks
- ____ Sales of $45,000,000
Research
- The chapter introduced several forms of business, including a corporation, sole proprietorship, and partnership. Other forms of business exist as well. Do research to compare and contrast the following business forms:
- Sole proprietorship
- Partnership
- Limited partnership
- C corporation
- S corporation
- Limited liability company (LLC)
- >Examine the following areas for each form of business: ease of organization and maintenance of form, number of people involved, government involvement, liability to owners, ease of exit, taxation, day-to-day management, and funding sources.
- Corporations usually provide a good amount of financial information on their Web sites. Visit http://www.starbucks.com to access information about Starbucks. You will need to click “about us” at the top and then “investor relations” on the left.
- For what amount is Starbucks stock currently selling?
- Give the year for the most current annual report listed.
- Name three members of Starbucks’ board of directors.
- Click on “investor FAQ” on the left. Choose a question that interests you. Write it here and summarize the answer given.
- Go the U.S. Department of Labor Web site at www.bls.gov/oco/ocos001.htm. Here you can learn about the profession of accounting.
- In general, what functions do accountants perform?
- Briefly list the different types of accountants and what they do.
- What education is required?
- What is a CPA?
- What are the typical requirements to become a CPA?
- What other certifications are available for accountants?
- What is the current job outlook for the accounting profession?