1. When a company has net income, what happens to its stockholders' equity, its assets, and/or its liabilities?
2. Will the carrying value of a long-term asset normally equal its market value?
3. If, at the end of the accounting period, you were looking at the T account for a prepaid expense like supplies, would you look for the amounts expended in cash on the debit or credit side? On which side would you find the amount expensed during the period?
4. Business application- Is accrual accounting more closely related to a company's goal of profitability or liquidity?
5. Business application- Would you expect net income to be a good measure of a company's liquidity? Why or why not?
6. Business application- Can you think of some situations when earnings management is acceptable?