Question 1: What Would Your Accountant Say?
The president of your company has asked the controller to give the members of your department a brief overview of the elements in the basic accounting equation (assets = liabilities + equity), including a description of each element and a sample of the accounts that might be contained within each element. At the last minute, the controller is called away and the president, knowing you are taking an accounting course as part of your MBA program, has asked you to fill in. What would your accountant say to the department?
Question 2: What Would Your Finance Manager Say?
Corporations can generate capital by either selling stock or borrowing money. As noted in the chapter, a firm can borrow directly from a bank or issue bonds. Assume that you were one of the founders of a small business start-up corporation. The start-up has some great ideas for developing software applications, but it has no money. Your expertise is in technology, but one of your partners has a background in finance. You suggest that the firm acquires its initial capital by getting a loan from a bank. Your financial partner says the corporation needs to sell stock before seeking debt capital. Why?
After selling stock, the firm decided to supplement its equity (owner) financing with debt capital. Would your finance manager recommend bank borrowing or issuing bonds as the first way to debt finance your small startup?
Question 3: Theory Vs. Practice
You intend to focus your business studies in marketing and sales, the areas in which you currently work and wish to advance. Explain why you need to understand basic accounting and finance although you will not practice these disciplines in your career.