Creditors look at the balance sheet to see whether the company: Multiple Choice is profitable. owns enough assets to pay what it owes to creditors. has had a positive cash flow from operations. is paying sufficient dividends to stockholders.
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9
Creditors look at the balance sheet to see whether the company:
-
is profitable.
-
owns enough assets to pay what it owes to creditors.
-
has had a positive
cash flow from operations. -
is paying sufficient dividends to stockholders.
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- Factors that reflect the ability of a business to pay its debts and earn a reasonable amount of income are referred to as solvency, profitability, and liquidity. O True False 00QUESTION 3 Undeniably, profitability is the ultimate goal of companies and readers of a company’s financial statements are very much interested in the reported profit figure. The profit figure is achieved by thepreparation of the statement of profit or loss and the statement of financial position. If the foregoing is the case, why then bother about the statement of cash flows?The quality of earnings concept indicates thata. stockholders want the corporation to earn enough income to be able to pay its debts.b. net income is the best measure of the results of operations.c. continuing operations and one-time transactions are of equal importance.d. income from continuing operations is a more relevant predictor of future performancethan income from one-time transactions
- Direction: Identify what describes the following statement. Write your answer on the blank before the number. ____________________1. It pertains to the state of one’s personal monetary affairs. ____________________2. It measures the ability to generate earnings from its resources or investments. ____________________3. It measures the ability to generate profit that ensures to pay business expenses and maintain a long-term financial success of the business. ____________________4. It measures the ability of the company to settle its short term debts. ____________________ 5. It measures how the business manage its assets or resources to produce output without wastage. ____________________6. It presents the financial statement amounts as a percentage of a base number. ____________________7. It is used to evaluate a number of issues with an entity, such as its liquidity, efficiency of operations, and profitability. ____________________8. These users of financial information are…I. Direction: Identify what describes the following statement. Write your answer on the blank before the number. ____________________1. It pertains to the state of one’s personal monetary affairs.____________________2. It measures the ability to generate earnings from its resources or investments. ____________________3. It measures the ability to generate profit that ensures to pay business expenses and maintain a long-term financial success of the business. ____________________4. It measures the ability of the company to settle its short term debts. ____________________ 5. It measures how the business manage its assets or resources to produce output without wastage. ____________________6. It presents the financial statement amounts as a percentage of a base number. ____________________7. It is used to evaluate a number of issues with an entity, such as its liquidity, efficiency of operations, and profitability. ____________________8. These users of financial information are interested…3. What is the possible suggestion of the Accountant or Financial Officer to theowner of the company, if there is excess cash above its required maintainingcash balance?A. Pay all creditsB. Buy brand new carC. Purchase additional machineD. Invest in short term investments to earn additional profits.
- Which of the following statements is FALSE?i. Using the payback rule, you can calculate how much profits are earned over the investment period.ii. The IRR is sensitive to the timing of the cash flows.iii. Shareholders have the first claim on the cash flows of the company.State whether the following statements are true or false. 4) Agency Problem creates when managers are acting on behalf of owners’ interest. 5) Increase in current liabilities and decrease in current asset represents inflow cash. 6) If an individual investor buys or sells a currently outstanding stock through a broker, this is a primary market transaction. 7) Activity ratios explain the firm ability to use assets efficiently.Undeniably, profitability is the ultimate goal of companies and readers of a company’s financialstatements are very much interested in the reported profit figure. The profit figure is achieved by thepreparation of the statement of profit or loss and the statement of financial position. If the foregoing is the4case, why then bother about the statement of cash flows?(5 marks)B. Globally, accounting standards are developed based on different methods. It is generally agreed that thenature of accounting standards depends on the systems of regulation. It has been argued that there are twomain systems of regulation.Required:Identify and explain the difference between the two systems of regulation, stating clearly which systemyou believe describes the International Financial Reporting Standards (IFRS)(5 marks)C. On 1st January 2018, Global Drilling Ltd entered into a GHS22million contract for the construction of anoffice complex at Tema. The building was completed at the end of December 2018.…
- The language of business embeds many equations. The equation which shows a company's resources equal claims to these resources is: A. Revenues - expenses = net income B. Assets = liabilities + stockholders' equity C. Cash increases - cash decreases= change in cash D. Common stock + retained earnings = stockholders' equity29 Which financial statement provides the most information about the following topics (and why)? Ability to pay debts Sources of cash receipts Issuance of common stock Usage of cash Amount the owners’ would receive if the firm closed Payment of dividends (stock or cash) Performance of the firm (in a given period) Amount owed to a creditor4) The statement of changes in financial position was designed to enable financial statement users to answer questions like these:a) Where did the profit go?b) What do you mean by dividend? Explainc) How was it possible to distribute dividends in the presence of a loss?
