978-0133423822 chapter 3 Part 3

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3.4 The Balance Sheet

1) Which of the following is not a current asset?

A) Accounts payable

B) Marketable securities

C) Accounts receivable

D) Inventory

Question Status: Previous edition

Objective: 3.4 Use the balance sheet to describe a irm’s investment in assets and the way it has

inanced them.

Keywords: balance sheet

Principles: Principle 2: There Is a Risk-Return Tradeof

2) Net plant and equipment is

A) plant and equipment purchases less amount borrowed to inance purchases.

B) current year plant and equipment purchases less current year’s depreciation expense.

C) gross plant and equipment less accumulated depreciation.

D) plant and equipment at current market valuations.

Question Status: New question

Objective: 3.4 Use the balance sheet to describe a irm’s investment in assets and the way it has

inanced them.

Keywords: balance sheet

Principles: Principle 2: There Is a Risk-Return Tradeof

3) Your irm has the following balance sheet statement items: total current liabilities of

$805,000; total assets of $2,655,000; ixed and other assets of $1,770,000; and long-term

debt of $200,000. What is the amount of the irm’s total current assets?

A) $885,000

B) $1,550,000

C) $600,000

D) $325,000

Question Status: Previous edition

Objective: 3.4 Use the balance sheet to describe a irm’s investment in assets and the way it has

inanced them.

Keywords: balance sheet

Principles: Principle 2: There Is a Risk-Return Tradeof

4) Your irm has the following balance sheet statement items: total current liabilities of

$805,000; total assets of $2,655,000; ixed and other assets of $1,770,000; and long-term

debt of $200,000. What is the amount of the irm’s net working capital?

A) $25,000

B) $325,000

C) $770,000

D) $80,000

Question Status: Previous edition

Objective: 3.4 Use the balance sheet to describe a irm’s investment in assets and the way it has

inanced them.

Keywords: balance sheet

Principles: Principle 2: There Is a Risk-Return Tradeof

5) Which of the following best describes a balance sheet?

A) Reports cash receipts and cash disbursements for a speciic accounting period

B) Reports investment activities for a speciied accounting period

C) Reports revenues and expenses for a speciic accounting period

D) Reports the amount and composition of assets and liabilities at a speciied point in time

Question Status: Previous edition

Objective: 3.4 Use the balance sheet to describe a irm’s investment in assets and the way it has

inanced them.

Keywords: balance sheet

Principles: Principle 2: There Is a Risk-Return Tradeof

6) Which of the following would NOT be included as an asset on a corporate balance sheet?

A) Accounts receivable

B) Common stock

C) Inventory

D) Buildings

Question Status: Previous edition

Objective: 3.4 Use the balance sheet to describe a irm’s investment in assets and the way it has

inanced them.

Keywords: balance sheet

Principles: Principle 2: There Is a Risk-Return Tradeof

7) Which of the following would NOT be included as a liability in a corporate balance

sheet?

A) Notes payable

B) Accounts payable

C) Bonds

D) Accumulated Depreciation

Question Status: Revised

Objective: 3.4 Use the balance sheet to describe a irm’s investment in assets and the way it has

inanced them.

Keywords: balance sheet

Principles: Principle 2: There Is a Risk-Return Tradeof

8) Which of the following would NOT be included as equity in a corporate balance sheet?

A) Cash

B) Paid in capital

C) Retained earnings

D) Common stock

Question Status: Revised

Objective: 3.4 Use the balance sheet to describe a irm’s investment in assets and the way it has

inanced them.

Keywords: balance sheet

Principles: Principle 2: There Is a Risk-Return Tradeof

9) Patriot Corporation purchased manufacturing equipment with an expected useful life of

ive years. The purchase of the machinery would be shown as

A) an expense on the balance sheet.

B) an expense on the income statement.

C) an asset on the balance sheet.

D) both an expense and an asset.

Question Status: New question

Objective: 3.4 Use the balance sheet to describe a irm’s investment in assets and the way it has

inanced them.

Keywords: balance sheet

Principles: Principle 2: There Is a Risk-Return Tradeof

10) When a company pays a dividend on common stock, it appears as

A) an expense on the income statement.

B) a reduction in the amount of retained earnings.

C) a current liability on the balance sheet.

D) dividend payments have no efect on the inancial statements.

Question Status: New question

Objective: 3.4 Use the balance sheet to describe a irm’s investment in assets and the way it has

inanced them.

Keywords: balance sheet

Principles: Principle 2: There Is a Risk-Return Tradeof

11) Grass Gadgets had sales of $30 million and net income of $2 million in 2008. Grass paid

a dividend of $1.5 million. Assuming that their beginning balance for retained earnings was

$3 million, calculate their ending balance for retained earnings.

A) $2.5 million

B) $3 million

C) $3.5 million

D) $4 million

Question Status: Previous edition

Objective: 3.4 Use the balance sheet to describe a irm’s investment in assets and the way it has

inanced them.

Keywords: balance sheet

Principles: Principle 2: There Is a Risk-Return Tradeof

12) Total equity on the balance sheet increases as dividends paid increases.

Question Status: Previous edition

Objective: 3.4 Use the balance sheet to describe a irm’s investment in assets and the way it has

inanced them.

Keywords: balance sheet

Principles: Principle 2: There Is a Risk-Return Tradeof

13) A balance sheet is a statement of the inancial position of the irm on a given date,

including its asset holdings, liabilities, and equity.

Question Status: Previous edition

Objective: 3.4 Use the balance sheet to describe a irm’s investment in assets and the way it has

inanced them.

Keywords: balance sheet

Principles: Principle 2: There Is a Risk-Return Tradeof

14) Under current accounting rules, plant and equipment appear on a company’s balance

sheet valued at replacement value.

Question Status: Previous edition

Objective: 3.4 Use the balance sheet to describe a irm’s investment in assets and the way it has

inanced them.

Keywords: balance sheet

Principles: Principle 2: There Is a Risk-Return Tradeof

15) When a corporation sells common stock to investors, the amount is added to revenue

on the income statement.

Question Status: New question

Objective: 3.4 Use the balance sheet to describe a irm’s investment in assets and the way it has

inanced them.

Keywords: balance sheet

Principles: Principle 2: There Is a Risk-Return Tradeof

16) An advantage of balance sheet numbers is that assets relect current market values.

Question Status: Previous edition

Objective: 3.4 Use the balance sheet to describe a irm’s investment in assets and the way it has

inanced them.

Keywords: balance sheet

Principles: Principle 2: There Is a Risk-Return Tradeof

17) A irm’s balance sheet provides a representation of the current market value of the

company.

Question Status: Previous edition

Objective: 3.4 Use the balance sheet to describe a irm’s investment in assets and the way it has

inanced them.

Keywords: balance sheet

Principles: Principle 2: There Is a Risk-Return Tradeof

18) Gross plant and equipment minus accumulated depreciation represents the fair market

value of a company’s ixed assets.

Question Status: New question

Objective: 3.4 Use the balance sheet to describe a irm’s investment in assets and the way it has

inanced them.

Keywords: balance sheet

Principles: Principle 2: There Is a Risk-Return Tradeof

19) Balance sheet and other accounts for GPA are listed below in alphabetical order. Use

these accounts to construct GPA’s balance sheet for 2013. All balance sheet accounts are

shown, but some accounts will not be used. All amounts are in millions of dollars.

Accounts payable $1900

Accounts receivable $661

Cash $1,000

Common stock $2,000

EBIT $1,968

Interest expense $8.00

Inventories $1,620

Long-term debt $890

Net plant & equipment $2,563

Other current assets $645

Other long-term assets $576

Retained earnings $2,080

Short-term debt $195

Taxes $778

Question Status: New question

Objective: 3.4 Use the balance sheet to describe a irm’s investment in assets and the way it has

inanced them.

Keywords: balance sheet

Principles: Principle 2: There Is a Risk-Return Tradeof

3.5 The Cash Flow Statement

1) Which of the following represents a source of cash?

A) A decrease in accounts payable

B) A decrease in accounts receivable

C) Payment of dividends

D) An increase in inventories

Question Status: New question

Objective: 3.5 Identify the sources and uses of cash for a irm using the irm’s cash low statement.

Keywords: cash low

Principles: Principle 3: Cash Flows Are the Source of Value

2) The change between a irm’s beginning cash balance and ending cash balance would

equal

A) cash low from operations + cash low from investing activities + cash low from

inancing activities.

B) the change in current assets minus the change in current liabilities.

C) net income plus new borrowing minus asset purchases.

D) total assets minus total liabilities minus total stockholders’ equity.

Question Status: New question

Objective: 3.5 Identify the sources and uses of cash for a irm using the irm’s cash low statement.

Keywords: cash low

Principles: Principle 3: Cash Flows Are the Source of Value

3) Which of the following does NOT represent cash outlows to the irm?

A) Taxes

B) Interest payments

C) Dividends

D) Depreciation

Question Status: Revised

Objective: 3.5 Identify the sources and uses of cash for a irm using the irm’s cash low statement.

Keywords: cash low

Principles: Principle 3: Cash Flows Are the Source of Value

4) The ratio of ________ to ________ is an indicator of the quality of a irm’s earnings.

A) cash low from operations, net income

B) liabilities, assets

C) dividends, interest expense

D) cash low from operations, capital expenditures

Question Status: New question

Objective: 3.5 Identify the sources and uses of cash for a irm using the irm’s cash low statement.

Keywords: cash low

Principles: Principle 3: Cash Flows Are the Source of Value

5) Operating cash low will increase with a decrease in

A) inventories.

B) current liabilities.

C) depreciation expense.

D) capital expenditures.

Question Status: New question

Objective: 3.5 Identify the sources and uses of cash for a irm using the irm’s cash low statement.

Keywords: cash low

Principles: Principle 3: Cash Flows Are the Source of Value

6) In a growing business, negative cash low from investing activities is normal.

Question Status: New question

Objective: 3.5 Identify the sources and uses of cash for a irm using the irm’s cash low statement.

Keywords: cash low

Principles: Principle 3: Cash Flows Are the Source of Value

7) Reducing a irm’s debt will increase its cash low.

Question Status: New question

Objective: 3.5 Identify the sources and uses of cash for a irm using the irm’s cash low statement.

Keywords: cash low

Principles: Principle 3: Cash Flows Are the Source of Value

8) Beginning cash balance + cash low from operations + cash low from investing

activities + cash low from inancing activities = ending cash balance.

Question Status: New question

Objective: 3.5 Identify the sources and uses of cash for a irm using the irm’s cash low statement.

Keywords: cash low

Principles: Principle 3: Cash Flows Are the Source of Value