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QUESTIONS

1. Definition of Operating - Operating activities include the production, sales, and delivery

of the company's product as well as collecting payment from its customers. This could

include purchasing raw materials, building inventory, advertising, and shipping the

 product.2. nvesting - nvesting activities include purchases or sales of an asset !assets can be land,

 building, e"uipment, mar#etable securities, etc.$, loans made to suppliers or received

from customers, payments related to mergers and ac"uisitions, and dividends received.%. &inancing - &inancing activities include the inflow of cash from investors, as well as the

outflow of cash to shareholders as dividends as the company generates income. Other

activities which impact the long-term liabilities and e"uity of the company are also listed

in the financing activities.. (haracteristic of partnerships

CharacteristicsThe characteristics of partnerships are different from the sole proprietorships already studied in basic

accounting. Some of the more important characteristics are as follows:

Mutual Contribution. There cannot be a partnership without contribution of money, property or industry (i.e.

work or services which may either be personal manual efforts or intellectual) to a common fund.

Division of Profits or Losses. The essence of a partnership is that each partner must share in the profits or

losses of the venture.

Co-Ownership of Contributed Assets. All assets contributed into the partnership are owned by the

partnership by virtue of its separate and distinct uridical personality. !f one partner contributes an asset to the

business, all partners ointly own it in a special sense.

Mutual Agency. Any partner can bind the other partners to a contract if he is acting within his e"press or

implied authority.

Limited Life. A partnership has a limited life. !t may be dissolved by the admission, death, insolvency,

incapacity, withdrawal of a partner or e"piration of the term specified in the partnership agreement.

nlimited Liability. All partners (e"cept limited partners), including industrial partners, are personally liable for

all debts incurred by the partnership. !f the partnership can not settle its obligations, creditors# claims will be

satisfied from the personal assets of the partners without preudice to the rights of the separate creditors of the

partners.

!ncome Ta"es. $artnerships, e"cept general professional partnerships, are subect to ta" at the rate of %&' (in

*), %%' (in ) and %+' (in + and thereafter) of ta"able income.

Partners! "#uity Accounts. Accounting for partnerships are much like accounting for sole proprietorships. The

difference lies in the number of the partners# e-uity accounts. Each partner has a capital account and a

withdrawal account that serves similar functions as the related accounts for sole proprietorships.

Advantages and Disadvantages

 A partnership offers certain advantages over a sole proprietorship and a corporation. !t also has a number of

disadvantages. They are as follows:

Advantages over Proprietorships

. rings greater financial capability to the business.

+. /ombines special skills, e"pertise and e"perience of the partners.

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%. 0ffers relative freedom and fle"ibility of action in decision1making.

Advantages over Corporations

. 2asier and less e"pensive to organi3e.

+. 4ore personal and informal.

Disadvantages

. 2asily dissolvable, and thus unstable compared to a corporation.+. 4utual agency and unlimited liability may create personal obligations to partners.

%. 5ess effective than a corporation in raising large amounts of capital.

). *dvantages and disadvantages of partnershipsAdvantages of a partnership include that+ 1.two heads !or more$ are better than one

2.your business is easy to establish and start-up costs are low more capital is available for 

the business %.youll have greater borrowing capacity high-calibre employees can be

made partners . there is opportunity for income splitting, ). an advantage of particular

importance due to resultant ta savings partners business affairs are private . there is

limited eternal regulation /. its easy to change your legal structure later if

circumstances change. Disadvantages of a partnership include that+ 1. the liability of the partners for the

debts of the business is unlimited each partner is 0ointly and severally liable for the

 partnerships debts that is, 2. each partner is liable for their share of the partnership debts

as well as being liable for all the debts %. there is a ris# of disagreements and friction

among partners and management each partner is an agent of the partnership and is liable

for actions by other partners if partners oin or leave, . you will probably have to value

all the partnership assets and this can be costly.. 3hat do board of directors do - * board of directors !4 of D$ is a group of individuals

that are elected as, or elected to act as, representatives of the stoc#holders to establishcorporate management related policies and to ma#e decisions on maor company issues./. 3hat is a discount bond - A bond that is issued for less than its par (or face) value, or

a bond currently trading for less than its par value in the secondary market. A bond is

considered a discount bond when it has a lower interest rate than the current market

rate, and conse-uently is sold at a lower price.

5. 3hat is meant by controlling interest over )678. Different types of special partnerships+ 9:, 99(, 99:

Limited Partnership * limited partnership !9:$ offers the same ta benefits as a

standard partnership with one eception. One or more of the partners are silent partners

this means that they will assist by giving the partnership seed money and collect profits,

 but will not run the business in any way. 4y remaining silent, these partners are shielded

from liability.Limited Liailit! Partnership * limited liability partnership !99:$ still offers the

 partnership ta benefits, but also offers liability protection for its partners. ;pecifically, a

limited liability partnership can only be sued for the total amount of assets in the

 business. &or eample, if a customer slipped on a pic#le in your grocery store and is

suing for their inuries, they cannot receive more than the total value of your grocery

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store. This partnership is a popular choice for law firms and medical practices to ensure

that customers cannot sue for assets such as the practitioners home.Limited Liailit! "ompan! * limited liability company !99($ offers both the most

 benefits and the most protection for a business owner. The 99( provides for the same ta

 protection as a partnership, but also gives the liability protection of a corporation. ona, have

created an even greater hybrid called a :rofessional 99(, where professionals such as

doctors and dentists can obtain the 99( protection, but with greater limitation than a

regular business.16. Definition of li"uidity, soldency, profitability, mar#et prospects11. ;pecial ournals !different types$+ ;ales, :urchases, Disbursements, (ash receipts,

?eneral ournal entries.

12. % ;pecial dates when it comes to dividends+ Date of Declaration, @ecord, :ayment1%. Definition of ;toc# Dividend - A stoc$ dividend is a dividend payment made in the

form of additional shares, rather than a cash payout. Also known as a 6scrip dividend.6

1. Definition and characteristic of preferred stoc#s - * preferred stoc# is a class of

ownership in a corporation that has a higher claim on its assets and earnings than

common stoc#. :referred shares generally have a dividend that must be paid out before

dividends to common shareholders, and the shares usually do not carry voting rights.

:referred stoc# combines features of debt, in that it pays fied dividends, and e"uity, in

that it has the potential to appreciate in price. The details of each preferred stoc# depend

on the issue.

1). Aotes :ayable !interest on the note$

RATIOS

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1.   Current   Ratio

(urrent *ssets(urrent 9iabilities

2.   Net   Profit   Margin (Return on Sales)

 Aet ncome B Aet ;ales

3. Du Pont Return on Assets

 Aet ncome B;ales

;ales

*ssets

*ssetsC"uity

4.   Debt  to  Equity

Total DebtTotal C"uity5.   Total   Asset  Turnover 

 Aet ;ales*verage Total *ssets

6.  Accounts  Receivable Turnover 

 Aet ;ales*verage ?ross @eceivables

7.  Days'   Sales in  nventory

Cnding nventory

(ost of ?oods ;old %)8.   nventory Turnover 

(ost of ?oods ;old*verage nventory

9.  Det #atioE Total 9iabilitiesTotal *ssets10. Da!s sales UncollectedE *@Aet ;ales %)