Chapter 1 Review Packet Solutions.docx - Chapter 1 Review...

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Chapter 1 Review Packet: 1) What is a corporation? a. A separate legal entity. Owners of the corporation are the stockholders. 2) How does a corporation raise capital (money)? (hint: 2 answers) a. Borrowing money (debt) b. Issuing new stock 3) Is a corporation a separate entity from the individual(s) who own the corporation? a. Yes, a corporation is a separate legal entity that can enter in contracts. 4) What can a corporation do with its profits (2 answers). a. Reinvest them in the business (retain them) b. Distribute to the owners via dividends 5) What are the two ways an individual makes money from owning a stock? a. Stock Price Appreciation b. Receiving dividends 6) What are the 4 primary financial statements and which order are they created? a. Income Statement b. Statement of Stockholders Equity i. Statement of Retained Earnings (part of stockholders equity) c. Balance Sheet d. Statement of Cash Flows 7) What financial statement(s) cover a period of time? a. All except the balance sheet 8) What financial statement(s) are at a point in time? a. Balance Sheet 9) What is the equation for the income statement? a. Revenue – Expenses + Gains – Losses = Net Income 10) What is the equation for the statement of retained earnings (note: the statement of retained earnings is part of the statement of stockholder’s equity) a. Beginning Balance of Retained Earnings + Net Income – Dividends = Ending Balance of Retained Earnings 11) What is the equation for the balance sheet?
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