Question

1. How are liabilities and owners’ equity similar? How are they different? 2. You are a...

1. How are liabilities and owners’ equity similar? How are they different?

2. You are a shareholder of the Schuster Corporation and have just received the latest annual report of the company, containing financial statements for the previous fiscal year. You have no access to key managers of the company. Where will you look for additional information about the company to decide whether to increase or decrease your share holdings in Schuster? How will you evaluate the reliability of this information?

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Answer #1

Answer for 1.

A. Liabilities are the rights of outsiders while equity is rights of shareholders.

B. Example for liabilities are

- creditors

- accounts payables

Example for owner's equity are

- share capital

-Reserves

C. Creditors ( Liability) can not control the operations of the company. While shareholders can control the operations of the company.

D. creditors may not have voting rights. But shareholders are may have voting right.

E. Liabilities have maturity. But shareholders fund do not have maturity.

F. Outsiders have legal priority over assets of the firm incase of liquidation of firm. Means first firm must pay the amount due to outsider then the firm can pay shareholders.

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