Accounting Questions

CHAPTER 2 & 3
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Question 1
1.
Below is the common equity section (in millions) of Teweles Technology’s last two year-end balance sheets:

2009 2008
Common stock
$2,000
$1,000
Retained earnings 2,000 2,340
Total common equity
$4,000
$3,340

Teweles has never paid a dividend to its common stockholders. Which of the following statements is CORRECT?
Answer

The company’s net income in 2009 was higher than in 2008.

Teweles issued common stock in 2009.

The market price of Teweles' stock doubled in 2009.

Teweles had positive net income in both 2008 and 2009, but the company’s net income in 2009 was lower than it was in 2008.

The company has more equity than debt on its balance sheet.

2 points
Question 2
1.
Analysts who follow Howe Industries recently noted that, relative to the previous year, the company’s operating net cash flow increased, yet cash as reported on the balance sheet decreased. Which of the following factors could explain this situation?
Answer

The company cut its dividend.

The company made a large investment in a profitable new plant.

The company sold a division and received cash in return.

The company issued new common stock.

The company issued new long-term debt. 2 points
Question 3
1.
A security analyst obtained the following information from Prestopino Products’ financial statements: