A100 Exam 2 Questions with Verified
Correct Answers
Equity Inestors - CORRECT ANSWER -Contributions from Owners (for a corporation
= stockholders). Earnings retained from profitable business operations (Retained
Earnings).
Debt Investors - CORRECT ANSWER -Creditors of the business, such as a bank,
bond holders, leasing companies.
Reported as current "liabilities" or "long term liabilities" on the financial
statements.
Both Principal & Interest must be paid.
Legal Rights for Equity Investors - CORRECT ANSWER -If we contribute funds to our
company, then we will be awarded shares of ownership (stockholders).
By investing our funds in our company, we hope the business uses our investment
to generate profits.
Risks for Equity Investors - CORRECT ANSWER -Stockholders face the risk of not
receiving a satisfactory return on their investment.
Sometimes investors can lose some or all of the investment if the business fails.
Stockholders may expect dividend payments that are not tax deductible.
Benefits for Equity Investors - CORRECT ANSWER -Stockholders may enjoy
increases in value of shares.
Stockholders may enjoy dividends if awarded by the Board of Directors.
, Legal Rights for Debt Investors - CORRECT ANSWER -Both interest (tax deductible)
and principal must be paid.
If our company does not make payments, the creditor has legal recourse to "call"
the loan and demand payment.
Risks for Debt Investors - CORRECT ANSWER -With borrowing funds from a
creditor, there is a financial risk that we may not be able to make payments on
time.
Sometimes companies have to liquidate assets to make payments.
Liquidating assets may cause our company to file for bankruptcy.
Benefits for Debt Investors - CORRECT ANSWER -Our goal is to earn a return
greater than that of the borrowed funds.
The net benefit will be retained by the owners of the company (us!).
Businesses can be divided into these categories - CORRECT ANSWER -Financing,
Investing, Operating
Securities and Exchange Commission (SEC) - CORRECT ANSWER -Established in
1934
Only applies to public companies
Requires public companies to file the following:
Form 10-K (annually)
Form 10-Q (quarterly)
Correct Answers
Equity Inestors - CORRECT ANSWER -Contributions from Owners (for a corporation
= stockholders). Earnings retained from profitable business operations (Retained
Earnings).
Debt Investors - CORRECT ANSWER -Creditors of the business, such as a bank,
bond holders, leasing companies.
Reported as current "liabilities" or "long term liabilities" on the financial
statements.
Both Principal & Interest must be paid.
Legal Rights for Equity Investors - CORRECT ANSWER -If we contribute funds to our
company, then we will be awarded shares of ownership (stockholders).
By investing our funds in our company, we hope the business uses our investment
to generate profits.
Risks for Equity Investors - CORRECT ANSWER -Stockholders face the risk of not
receiving a satisfactory return on their investment.
Sometimes investors can lose some or all of the investment if the business fails.
Stockholders may expect dividend payments that are not tax deductible.
Benefits for Equity Investors - CORRECT ANSWER -Stockholders may enjoy
increases in value of shares.
Stockholders may enjoy dividends if awarded by the Board of Directors.
, Legal Rights for Debt Investors - CORRECT ANSWER -Both interest (tax deductible)
and principal must be paid.
If our company does not make payments, the creditor has legal recourse to "call"
the loan and demand payment.
Risks for Debt Investors - CORRECT ANSWER -With borrowing funds from a
creditor, there is a financial risk that we may not be able to make payments on
time.
Sometimes companies have to liquidate assets to make payments.
Liquidating assets may cause our company to file for bankruptcy.
Benefits for Debt Investors - CORRECT ANSWER -Our goal is to earn a return
greater than that of the borrowed funds.
The net benefit will be retained by the owners of the company (us!).
Businesses can be divided into these categories - CORRECT ANSWER -Financing,
Investing, Operating
Securities and Exchange Commission (SEC) - CORRECT ANSWER -Established in
1934
Only applies to public companies
Requires public companies to file the following:
Form 10-K (annually)
Form 10-Q (quarterly)
