1. Which of the following statements is CORRECT?
a. If a company pays more in dividends than it generates in net income, its retained earnings as reported on the balance sheet will decline from the previous year's balance.
b. If a company uses some of its bank deposits to buy short-term, highly liquid marketable securities, this will cause a decline in its current assets as shown on the balance sheet.
c. Dividends paid reduce the net income that is reported on a company’s income statement.
d. If a company issues new long-term bonds to purchase fixed assets during the current year, this will increase both its reported current assets and current liabilities at the end of the year.
e. Accounts receivable are reported as a current liability on the balance sheet.
2. Which of the following statements is CORRECT?
a. The assets section of a typical company’s balance sheet begins with cash, then lists the assets in the order in which they will probably be converted to cash, with the longest lived assets listed last.
b. If a company's statements were prepared in accordance with generally accepted accounting principles (GAAP), the market value of the stock equals the book value of the stock as reported on the balance sheet.
c. The balance sheet for a given year tells us how much money the company earned during that year.
d. The balance sheet for a given year is designed to give us an idea of what happened to the firm during that year.
e. The difference between the total assets reported on the balance sheet and the liabilities reported on this statement tells us the current market value of the stockholders' equity, assuming the statements are prepared in accordance with generally accepted accounting principles (GAAP).