Lecture 8 - Shareholders' Equity and Investments (Chapters 8 and 10) Flashcards
Investment types, gains and losses, shares, dividends
When are short-term investments expected to be realized?
Within 12 months of investing.
When are long-term investments expected to be realized?
After more than within 12 months of investing.
Account for the three types of investments.
- Financial assets
- Investments in affiliates
- Investments in subsidiaries
What type of investment are both loans and receivables?
Financial assets.
What’s the second-most liquid asset?
Short-term investments.
What effect does a gain have on the balance sheet?
It increases equity.
What effect does a loss have on the balance sheet?
It decreases equity.
What factors determine foreign currency exchange rates?
Differences in inflation and interest rates, public debt, and political stability.
What does the term “share capital” refer to?
How much money a company’s owners have invested in the business.
What does the term “retained earnings” refer to?
Profits from prior periods that haven’t been distributed to the owners.
True or false: a corporation is owned by its shareholders, but any assets and liabilities the corporation has belongs to the corporation itself.
True
What effect does issuing shares have on the balance sheet?
It increases both assets and equity.
Do dividends have an effect on the balance sheet?
No.
What does “earnings per share” mean?
It shows how much profit a company generates per share.
How do you calculate “earnings per share”?
Earnings per share = (Net income - Preferred dividends) / Average number of ordinary shares outstanding
What’s the most common type of dividend?
Cash.
What effect do share dividends have on “share capital” and “retained earnings”?
They increase “share capital” and decrease “retained earnings”.
