Name:Lobarbio, Fitz Clark T.

Date:August 25,2021

LESSON 1

ACTIVITY
1. What are the basic financial statements?
2. What are the contents of each statement?
3. Why is financial statement necessary for a business firm?
4. Discuss the reason why the balance sheet is often referred to as the statement of financial
condition or financial position.
5. How are dividends treated in the statement of retained earnings?

ANSWER
1. The basic financial statements of an enterprise include the balance sheet or statement of
financial position, income statement, cash flow statement, and statement of changes in owners'
equity or stockholders' equity. The balance sheet provides a snapshot of an entity as of a
particular date.

2. Contents of a balance sheet include fixed assets - long-term possessions. current assets -
short-term possessions. current liabilities - what the business owes and must repay in the short
term.
The income statement focuses on four key items—revenue, expenses, gains, and losses. It
does not differentiate between cash and non-cash receipts sales in cash versus sales on credit
or the cash versus non-cash payments/disbursements purchases in cash versus purchases on
credit.
A cash flow statement is a financial statement that summarizes the amount of cash and cash
equivalents entering and leaving a company. The main components of the cash flow statement
are cash from operating activities, cash from investing activities, and cash from financing
activities.

3. Financial statements provide a snapshot of a corporation's financial health, giving insight into
its performance, operations, and cash flow. Financial statements are essential since they
provide information about a company's revenue, expenses, profitability, and debt.

4.A balance sheet is also called a 'statement of financial position' because it provides a
snapshot of your assets and liabilities and therefore net worth at a single point in time unlike
other financial statements, such as profit and loss reports, which give you information about
your business over a period of time.

5. Dividends are treated as a debit, or reduction, in the retained earnings account whether
they've been paid or not.
LESSON 2
SELF-ASSESSMENT QUESTIONS
1. In financial statements analysis, expressing all financial statement items as a percentage of
base year amounts is called
D. vertical common-size analysis

2. In financial statements analysis, expressing figures for a single year as a percentage of a

base amount on the financial statement (for example, total assets in a balance sheet or sales in
an income statement) is called
D. vertical common-size analysis

3. Which of the following statements is correct?

C. Trading on the equity refers to a firm’s sale of its own stocks in the stock exchange.
management of assets, cost control, growth and valuation.

4. Solvency is a firm’s ability to survive in the long term by paying its long-term obligations. Its
key ingredients are capital structure and earning power. Capital structure consists of
C. The firm’s sources of financing, whether long-term or short-term, of its assets.

5. Financial leverage or trading on equity is advantageous when

C. Earnings from borrowed funds exceed borrowing costs.

6. Through financial statements analysis, interested parties – such as managers, investors, and
creditors – can identify the company’s financial strengths and weaknesses and know about the
following, except
D. Composition of management running the firm

7. Financial statements analysis is not without problems and limitations. Among such limitations
is as follows, except:C. Financial statements are based on current market value of the
firm’s assets, therefore they do not reflect historical costs.

8. Which of the following is not a limitation of a ratio analysis affecting comparability among
Firms? A. Provision of useful information regarding the efficiency of operations and the
stability of financial conditions

9. In assessing a financial health of a firm, financial analysts use different techniques. One
technique is the vertical, common-size analysis, an example of which is
A. Total current assets is 20% of the total assets of a certain date.

10. Which of the following statements is not correct? A limitation of ratio analysis affecting
comparability from one interim period to the next within a firm is that
B. Management has less incentive to window dress financial statement to improve
results
LESSON 3
SELF ASSESSMENT

Beauty Option Incorporated had these transactions during 2012.

a) P500,000 note issued to the bank for a loan.
b) Machine purchased for P30,000, giving 25% cash and a long-term note for the balance
c) A piece of land exchanged in payment of the bank loan in transaction a)
d) Stock dividends of P8,000
e) A long-term investment with a cost of P15,000 sold for P18,000 cash.
f) Accounts receivable collected for P16,000.
g) Accounts payable paid for P18,000.
h) Operating expenses of P250,000 of which P80,000 is still unpaid.

ANSWER
Analyze the transactions and indicate whether each transaction amount is cash inflow or cash
outflow from operating activities, investing activities, financing activities or non-cash investing
and financing activities. Use the following format.

OPERATING INVESTING FINANCING NON CASH

Inflow Outflow Inflow Outflow Inflow Outflow
a 500,000
b 7,500 22,500
c 500,000
d 8,000
e 3,000 15,000
f 16,000
g 18,000
h 250,000