Question Details

The primary reason the annual report is important in finance




TRUE/FALSE

	1.	The annual report contains four basic financial statements: the income statement, balance sheet, statement of cash flows, and statement of stockholders' equity.


	2.	The primary reason the annual report is important in finance is that it is used by investors when they form expectations about the firm's future earnings and dividends, and the riskiness of those cash flows.


	3.	Consider the balance sheet of Wilkes Industries as shown below. Because Wilkes has $800,000 of retained earnings, the company would be able to pay cash to buy an asset with a cost of $200,000.

Cash	$     50,000	Accounts payable	$   100,000
Inventory	200,000	Accruals	     100,000
Accounts receivable	     250,000	Total CL	$   200,000
Total CA	$   500,000	Debt	200,000
Net fixed assets	$   900,000	Common stock	200,000
	_________	Retained earnings	     800,000
Total assets	$1,400,000	Total L & E	$1,400,000



	4.	On the balance sheet, total assets must always equal total liabilities and equity.



	5.	Assets other than cash are expected to produce cash over time, but the amount of cash they eventually produce could be higher or lower than the values at which these assets are carried on the books.




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