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Foundations of Business. Introduction to Financial Reporting The Balance Sheet. Financial Application Assignment. Assets = Liabilities = Equity =. What a business owns What a business owes Owners ’ economic position in the business. Basic Elements of Financial Statements.

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Foundations of Business

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Foundations of Business

Introduction to Financial Reporting

The Balance Sheet

Financial Application Assignment




What a business owns

What a business owes

Owners’ economic position in the business

Basic Elements of Financial Statements

Assets =

(What a company owns)

A =



Stockholders’ Equity

L + OE

Balance Sheet Equation

(Funds to purchase what a company owns)

What a Company = owns

A =

Funds to purchase what a company owns

L + OE

Balance Sheet

Cash $8,690

Accounts Receivable 3,000

Inventory 3,500

Current Assets 15,190

Equipment 3,000

Total Assets $18,190

Accounts Payable$2,000

Wages Payable 500Current Liabilities 2,500

Notes Payable (L.T.) 5,000

Total Liabilities 7,500

Common Stock10,000

Retained Earnings 690 Total Shareholders’ Equity 10,690

Total Liab. & SH Equity $18,190

Champ Creemee CompanyBalance Sheet(as of 12/31/10)

Shows the company’s position on a fixed date; “snapshot” in time

Increase in something owned

Increase in something owed

Sale of Common stock

Increase in Sales

Increased Expenses associated with sales

Increase in Net Income

Pay dividend

+ Asset

+ Liability

+ Common Stock

+ Sales

+ Net Income

+ Expenses

- Net Income

+ Retained Earnings

- Retained Earnings

How Transactions Impact Financial Statements

Owners’ Equity

Example: Owning a house with a mortgage

Value of the house (= asset):$300,000

- Mortgage (= liability):$200,000

Owners’ Equity:$100,000

Assets- Liabilities= Equity

(House)- (Mortgage)= Equity

$300,000 - $200,000= $100,000

The 30 Companies in the Dow Jones Industrial Average (DJIA)

Spring 2011

The Dow Jones Industrial Average (The DJIA or the “Dow”)

= Dow Jones

Source: Google Finance

The Dow vs. the S&P 500 (Standard & Poor’s 500)

= Dow Jones

= S&P 500

Source: Google Finance

3 major market indexesthe DJIA, S&P 500, NASDAQ


Source: Google Finance

BP vs. Exxon Mobil vs. the S&P 500

Source: Google Finance

Link to Financial Application Assignment

A major company event—Jan. 13, 2011Effect on company stock price?


Merck clot drug seen unfit for stroke

Top experimental drug found unfit for stroke patients

* Vorapaxar acquired in Merck's buy of Schering-Plough

* Dashed drug hopes pose challenge to new CEO

* Merck shares drop 6.6 pct (Adds Merck drag on Dow, drug sales potential, stroke statistics)

By Ransdell Pierson

NEW YORK, Jan 13 (Reuters) - One of Merck & Co's (MRK) most important experimental drugs, blood clot preventer Vorapaxar, has been deemed inappropriate for patients who have suffered a stroke, dashing investor hopes and erasing nearly $8 billion from its market value.

Vorapaxar, meant to prevent heart attacks and strokes or their recurrence, was considered a crown jewel in Merck's $41 billion acquisition in late 2009 of Schering-Plough Corp and deemed capable of generating annual sales of more than $3 billion.

Jan. 13, 2011

Date, source

Company announcement

Comparison chart: The impact of a company event on the company’s stock price

Event: Announcement by Merck of Vorapaxar’s ineffectiveness

Effect of a company announcement on the company’s stock price

MRK’s stock price underperforms the S&P500 slightly before the event but then experiences a sharp decline on the day of the event and continues to underperformthe S&P 500 for the next 5 days.

Date of Announcement

Creating an Index

Base value 2

Base value 1

Index = new value / base value * 100

Champ Creemee CompanyInventory

2 gallons of ice cream



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