BCOR 1010 EXAM 2
1. What purposes might a company need long term
funds for? How will the choice of debt or equity-
financing impact a firm’s capital structure?
A company would need funds for-(PPE) Property, place
and equipment anything with a strategic investment. Also,
if they buy a company or need to take out a big loan. Debt
financing affects company by leverage, more risk. Equity
makes dilution bigger, because of the sale of stock,
Preferred or Common stock.
2. What is the relationship between financial accounting
and corporate social responsibility?
Financial accounting ensure CSR because it makes sure no
one is embellishing the companies money and regulates
Keeps track of the companies spending and where their
money is going.
Financial accounting has GAAP incorporated with it and they
regulate themselves. CSR is another system to keep the firm
You take into account stakeholders, so when investers look
at a company they know the info is accuracted and truthful
so they can make informed decisions.
Based on current and future info they are given. financial
info. Accounting and finance be ethical. 3. What is the accounting equation? What is the
primary purpose of double entry bookkeeping?
ASSETS=owners equity + liabilities, Keeps the companies
balance sheet balances, keeps check of money. Both sides
of the equation must be balanced.
Extra info- Assets are Cash, accounts receivable listed in
order of liquidity. Liabilities-costs of good sold, debt,
accounts payable. Owners equity-total profits you make.
4. What tools could the Federal Reserve use to impact
the supply of money and how could its actions impact the
economy and the supply of money?
the fed uses three main tools-
1. Open market operations-which is the buying and selling
of government bonds. You sell the bonds to take cash
out of the economy. It is the value of money-always
2. Discount Rate- interest rate at which the fed loans
money to banks. Lower rate=increase money. The fed
can raise or lower rates so banks don’t lend to much
3. Reserve Requirement-when the fed tells how much
money the bank is required to hold in their vaults. If
more money in vaults then less money in circulation
and vice versa. If there is inflation then they will make
the requirement higher. It is the percent of deposits that a bank has to keep on hand.
Use these tools to keep the market in check.
5. What are the purposes of financial ratio analysis?
Name one major category of financial ratios and what
information that category provides/what it measures. Identify
a stakeholder group that might use the ratio and why.
Purposes-to compare companies performance to other
companies and compare old to new performance
(performance over time). Simplifies complex information.
Significant because it allows an investor to determine
whether or not they want to invest in the firm. Profitability
ratios help know how net income/profit is doing for the sales
revenue. Asset Utilization looks at how well a firm uses
assets to make a profit. used to see if they should invest in a company.
Asset utilization measures inventory turnover, which is how quickly a company is
going through their inventory.
Liquidity how fast firm can turn something into cash.
Stakeholder group would be an investor to see how much
revenue they pull in to see if they want to invest in the
6. How can a company use promotion of a product or
service to gain control over the price it charges for that
product or service?
A company uses promotion of a product or service to gain
control over the price it charges by differentiating (showing how your product is different and better and the goal is to
gain control of the price). Promotion also positions, add
value and identifies and creates a need. Communicates
uses, features and benefits of a product. SIGNIFICANT-
good marketing creates a need for the product- so the
consumer wants the good/service even if they might not
have a need for it.
7. What does the income statement tell about a
business? What does the balance sheet tell about a
business? Why would an investor look at both? How are the
Income statement shows how profitable a business is over
time(Year), tells how firm operates; **sales-
expenses=gain/loss. Balance sheet tells what a companies
assets, equity and liability and is a snapshot for a specific
period of time, assets=owners equity+liability,
tangible/intangible, listed in descending order of liquidity,
SIG-represents the value held In the company by owners.
Investor look at both to see how much the company is worth
and how long its equipment is valued, income statement
shows if firm is profitable and BS shows what the owe and
own and if they are in debt. They are connected by showing
the net income/loss on IS and owners equity on BS
represent change in business. Expenses on IS show up on
liabilities on BS. Show depreciation to show.
Bs-shows how a business is doing at a certain point at time.
Shows if there is stock involved-shows total financial position of business at certain
point in time.