1.

Profitability:

• Question: What does profitability measure in a company?

▪ A) The ability to pay off short-term debts

▪ B) The ability to generate revenue in excess of expenses

▪ C) The ability to convert assets into cash

▪ D) The ability to meet long-term financial obligations

2. Liquidity:

• Question: What does liquidity indicate about a company?

▪ A) The company’s ability to generate profits

▪ B) The company’s ability to sustain operations over the long term

▪ C) The ease with which a company can convert assets into cash to meet short-term
obligations

▪ D) The company’s total assets compared to its total liabilities

3. Solvency:

• Question: What does solvency reflect about a company?

▪ A) The company’s ability to generate revenue in excess of expenses

▪ B) The company’s ability to meet its long-term financial obligations and sustain operations
over the long term

▪ C) The company’s ability to pay off its current liabilities

▪ D) The company’s cash flow from operating activities

Assets

• Current Assets

• Cash: $10,000

• _____________

• Inventory: $8,000

• Prepaid Expenses: $2,000

• Total Current Assets: $25,000

• Non-Current Assets

• Property, Plant, and Equipment: $50,000

 • Less: ______________

• Net Property, Plant, and Equipment: $40,000

• Intangible Assets (e.g., Patents): $5,000

• Total Non-Current Assets: $45,000

• Total Assets: $70,000

Liabilities and Equity

• Current Liabilities

• _______________

• Short-term Loans: $3,000

• Accrued Expenses: $2,000

• Total Current Liabilities: $9,000

• Non-Current Liabilities

• Long-term Debt: $20,000

• Total Non-Current Liabilities: $20,000

• Total Liabilities: $29,000

• Equity

• Common Stock: $30,000

• ____________

• Total Equity: $41,000

• Total Liabilities and Equity: $70,000

Earnings Per Share (EPS)

1. Question: A company has a net income of $1,250,000, preferred dividends of $150,000,

and 50,000 outstanding shares. What is the earnings per share (EPS)?

o A) $22

o B) $25

o C) $21

o D) $24
 2. Question: If a company’s net income is $2,500,000, preferred dividends are $300,000, and
it has 100,000 outstanding shares, what is the EPS?

o A) $22

o B) $23

o C) $24

o D) $25

3. Question: A company reports a net income of $3,750,000, preferred dividends of $450,000,

and has 150,000 shares outstanding. Calculate the EPS.

o A) $22

o B) $23

o C) $24

o D) $25

4. Question: Calculate the weighted average common shares outstanding if the beginning
balance is 80,000 shares and the ending balance is 120,000 shares.

o A) 90,000

o B) 100,000

o C) 110,000

o D) 120,000

Working Capital

5. Question: A company has current assets of $500,000 and current liabilities of $350,000.
What is the working capital?

o A) $100,000

o B) $150,000

o C) $200,000

o D) $250,000

6. Question: If a company’s current assets are $1,200,000 and its current liabilities are
$800,000, what is the working capital?

o A) $300,000

o B) $400,000

o C) $500,000
 o D) $600,000

7. Question: A company has current assets of $750,000 and current liabilities of $450,000.
Calculate the working capital.

o A) $200,000

o B) $250,000

o C) $300,000

o D) $350,000

Total Liabilities/Total Assets Ratio

8. Question: A company has total assets of $3,000,000 and a total liabilities/total assets ratio
of 0.6. Calculate the total liabilities.

o A) $1,200,000

o B) $1,500,000

o C) $1,800,000

o D) $2,000,000
9. Question: If a company’s total assets are $4,500,000 and its total liabilities/total assets
ratio is 0.4, what are the total liabilities?

o A) $1,500,000

o B) $1,800,000

o C) $2,000,000

o D) $2,200,000

10. Question: A company reports total assets of $2,500,000 and a total liabilities/total assets
ratio of 0.7. Calculate the total liabilities.

o A) $1,500,000

o B) $1,750,000

o C) $2,000,000

o D) $2,250,000

Four Financial Statements

1. Question: What are the main components of an income statement, and how do they
contribute to determining net income?

2. Question: Explain the difference between the balance sheet and the statement of cash
flows.
 3. Question: How does the statement of retained earnings link the income statement and the
balance sheet?

4. Question: Describe how the cash flow from operating activities is calculated using the
indirect method.

Types of Business Entities and Their Advantages

5. Question: Compare and contrast the tax implications of a sole proprietorship and a
corporation.

6. Question: What are the main advantages of forming a corporation over a partnership?

7. Question: Explain the concept of double taxation and how it affects corporations.

Accounts and Financial Statements

8. Question: Which financial statement would you find accounts receivable, and why is it
classified there?

9. Question: On which financial statement would you find dividends, and how does it affect
the statement?
10. Question: Explain why depreciation expense appears on the income statement but
accumulated depreciation appears on the balance sheet.

Basic Financial Statement Equations

11. Question: Given the following information, calculate the net income: Revenues = $500,000,
Expenses = $300,000, Dividends = $20,000.

12. Question: If a company has total assets of $1,000,000 and total liabilities of $600,000, what
is the equity?

13. Question: Calculate the ending retained earnings given the following: Beginning retained
earnings = $50,000, Net income = $30,000, Dividends paid = $10,000.

Order of Accounts on Classified Balance Sheets

A Cold Snowy Afternoon Never IS

Pretty Enough
14. Question: List the order of accounts under current assets on a classified balance sheet.

15. Question: Explain the difference between current liabilities and long-term liabilities and
provide examples of each.
 16. Question: Why are intangible assets listed separately from property, plant, and equipment
on the balance sheet?

Notes of the Financials

17. Question: What type of information is typically included in the notes to the financial
statements?

18. Question: How do the notes to the financial statements enhance the understanding of the
financial statements themselves?

Management Discussion and Analysis (MD&A)

20. Question: What is the purpose of the Management Discussion and Analysis (MD&A)
section in an annual report?

21. Question: Describe the types of information typically found in the MD&A section.

22. Question: How does the MD&A section help investors make informed decisions?

Advanced Calculations and Analysis

23. Question: Given the following information, calculate the total liabilities: Total assets =
$2,000,000, Equity = $1,200,000.

24. Question: If a company has a beginning balance of common stock of $100,000 and an
ending balance of $150,000, calculate the weighted average common shares outstanding.

25. Question: Explain how to use the basic accounting equation to determine the missing
value: Assets = Liabilities + Equity. Given Assets = $500,000 and Liabilities = $300,000, find
the Equity.