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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

Foundations of Business

Introduction to Financial Reporting

The Balance Sheet

Financial Application Assignment

basic elements of financial statements
Assets =

Liabilities =

Equity =

What a business owns

What a business owes

Owners’ economic position in the business

Basic Elements of Financial Statements
balance sheet equation
Assets =

(What a company owns)

A =



Stockholders’ Equity

L + OE

Balance Sheet Equation

(Funds to purchase what a company owns)

balance sheet
What a Company = owns

A =

Funds to purchase what a company owns

L + OE

Balance Sheet
champ creemee company balance sheet as of 12 31 10
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 Stock 10,000

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

how transactions impact financial statements
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
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 dow vs the s p 500 standard poor s 500
The Dow vs. the S&P 500 (Standard & Poor’s 500)

= Dow Jones

= S&P 500

Source: Google Finance

bp vs exxon mobil vs the s p 500
BP vs. Exxon Mobil vs. the S&P 500

Source: Google Finance

Link to Financial Application Assignment

a major company event jan 13 2011 effect on company stock price
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
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
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
Creating an Index

Base value 2

Base value 1

Index = new value / base value * 100

champ creemee company inventory
Champ Creemee CompanyInventory

2 gallons of ice cream