Question

Assume you are the president of High Power Corporation. At the end of the first year of operations (December 31), the following financial data for the company are available.

Accounts Payable	$	32,600
Accounts Receivable		10,300
Cash		13,800
Common Stock		59,590
Dividends		2,000
Equipment		84,000
Notes Payable		1,410
Operating Expenses		58,900
Other Expenses		7,900
Sales Revenue		88,800
Supplies		5,500

Required:

1. 1-a. Is the company financed mainly by creditors or stockholders?

• Creditors

• Stockholders

1. 1-b. Which financial statement provides the information regarding the source of financing?

• Income Statement

• Statement of Retained Earnings

• Balance Sheet

• Statement of Cash Flows
  
  2-a. By how much did cash increase (decrease)?
  2-b. Which financial statement would report the business activities responsible for the change in cash?

  • Income Statement

  • Statement of Retained Earnings

  • Balance Sheet

  • Statement of Cash Flows

3-a. Was the company profitable?

• Yes

• No
  
  3-b. Which financial statement provides the information regarding profitability?

• Income Statement

• Statement of Retained Earnings

• Balance Sheet

• Statement of Cash Flow
  
  4-a. Did the company’s dividends exceed its net income?

• Yes

• No
  4-b. Which financial statement provides the information regarding the company’s dividends?

• Income Statement

• Statement of Retained Earnings

• Balance Sheet

• Statement of Cash Flows

Answer 1

1-a)	Since the amount of common stock exceeds all the liabilities, we can easily say that
	the company is mainly financed by stockholders
1-b)	Information regarding source of financing can be obtained from Balance Sheet
2-a)	Since it's the first year of operation, the opening balance of cash was NIL and the
	ending balance in $ 13800, so we can conclude that the cash balance has
	increased by $ 13800
2-b)	Information regarding change in cash can be obtained from Statements of Cash Flow
3-a)		Income Statement
		Sales Revenue			$ 88,800.00
	Less:	Operating expenses			$(58,900.00)
	Less:	Other expenses			$   (7,900.00)
		Net Income			$ 22,000.00
	We can observe from the income statement, the company was profitable
3-b)	Income Statement shows the profitability of a company
4-a)	Net income for the year is $ 22000 and dividend declared is $ 2000
	So the answer is NO
4-b)	Statement of Retained Earnings shows the amount of dividend declared