Chapter 2

Question 1

income statement

Answer 1

measures profitability

Question 2

primary sources of capital (3)

Answer 2

1. bondholders (receive interest)
2. preferred stockholders (receive dividends)
3. common stockholders (receive dividends after preferred stockholders)

Question 3

price earnings ratio

Answer 3

indicates expectations about the future of a company

Question 4

direct method

Answer 4

every item on the income statement is adjusted from accrual to cash accounting

Question 5

indirect method

Answer 5

required adjustments are made to convert net income to cash flows from operations