14) Balance Sheet
Assets Liabilities
Current Assets Current Liabilities
Cash 53 Accounts payable 40
Accounts receivable 23 Notes payable/short-term debt 5
Inventories 17
Total current assets 93 Total current liabilities 45
Long-Term Assets Long-Term Liabilities
Net property, plant,
and equipment 117 Long-term debt 133
Total long-term assets 117 Total long-term liabilities 133
Total Liabilities 178
Stockholders’ Equity 32
Total Assets 210 Total Liabilities and 210
Stockholders’ Equity
The above diagram shows a balance sheet for a certain company. All quantities shown are
in millions of dollars. If the company has 5 million shares outstanding, and these shares are
trading at a price of $6.39 per share, what does this tell you about how investors view this
irm’s book value?
A) Investors consider that the irm’s market value is worth very much less than its book
value.
B) Investors consider that the irm’s market value is worth less than its book value.
C) Investors consider that the irm’s market value and its book value are roughly
equivalent.
D) Investors consider that the irm’s market value is worth more than its book value.
AACSB Objective: Analytic Skills
Author: DS
Question Status: Previous Edition
15) Which of the following balance sheet equations is INCORRECT?
A) Assets – Liabilities = Shareholders’ equity
B) Assets = Liabilities + Shareholders‘ equity
C) Assets – Current liabilities = Long-term liabilities
D) Assets – Current liabilities = Long-term liabilities + Shareholders’ equity
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised
11
16) Cash is a ________.
A) long-term asset
B) current asset
C) current liability
D) long-term liability
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised
17) Accounts payable is a ________.
A) long-term liability
B) current asset
C) long-term asset
D) current liability
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised
18) A 30-year mortgage loan is a ________.
A) long-term liability
B) current liability
C) current asset
D) long-term asset
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised
19) Which of the following statements regarding the balance sheet is INCORRECT?
A) The balance sheet provides a snapshot of a irm’s inancial position at a given point in
time.
B) The balance sheet lists a irm’s assets and liabilities.
C) The balance sheet reports stockholders’ equity on the right-hand side.
D) The balance sheet reports liabilities on the left-hand side.
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised
20) Luther Corporation
Consolidated Balance Sheet
December 31, 2006 and 2005 (in $ millions)
Assets 2006 2005
Liabilities and
Stockholders’ Equity 2006 2005
Current Assets Current Liabilities
Cash 50.7 58.5 Accounts payable 84.4 73.5
12
Accounts receivable 54.9 39.6
Notes payable / short-
term debt 9.4 9.6
Inventories 44.7 42.9
Current maturities of
long-term debt 39.8 36.9
Other current assets 6.1 3.0 Other current liabilities 6.0 12.0
Total current assets 156.4 144.0 Total current liabilities 139.6 132.0
Long-Term Assets Long-Term Liabilities
Land 66.8 62.1 Long-term debt 222.3 168.9
Buildings 106.2 91.5
Capital lease
obligations
Equipment 115.7 99.6
Less accumulated
depreciation (56.5) (52.5) Deferred taxes 22.8 22.2
Net property, plant, and
equipment 232.2 200.7
Other long-term
liabilities — —
Goodwill 60.0 —
Total long-term
liabilities 245.1 191.1
Other long-term assets 63.0 42.0 Total liabilities 384.7 323.1
Total long-term assets 355.2 242.7 Stockholders’ Equity 126.9 63.6
Total Assets 511.6 386.7
Total liabilities and
Stockholders’ Equity 511.6 386.7
Refer to the balance sheet above. What is Luther’s net working capital in 2006?
A) $16.8 million
B) $296.0 million
C) $33.6 million
D) $8.4 million
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised
13
2.3 Balance Sheet Analysis
1) In general, a successful irm will have a market-to-book ratio that is substantially greater
than 1.
AACSB Objective: Analytic Skills
Author: DS
Question Status: Previous Edition
14
2) Luther Corporation
Consolidated Balance Sheet
December 31, 2006 and 2005 (in $ millions)
Assets 2006 2005
Liabilities and
Stockholders’ Equity 2006 2005
Current Assets Current Liabilities
Cash 59.5 58.5 Accounts payable 88.9 73.5
Accounts receivable 55.1 39.6
Notes payable / short-
term debt 10.4 9.6
Inventories 45.9 42.9
Current maturities of
long-term debt 37.3 36.9
Other current assets 5.5 3.0 Other current liabilities 6.0 12.0
Total current assets 166.0 144.0
Total current
liabilities 142.6 132.0
Long-Term Assets Long-Term Liabilities
Land 66.1 62.1 Long-term debt 236 168.9
Buildings 109.4 91.5
Capital lease
obligations
Equipment 118.5 99.6
Less accumulated
depreciation (54.9) (52.5) Deferred taxes 22.8 22.2
Net property, plant, and
equipment 239.1 200.7
Other long-term
liabilities — —
Goodwill 60.0 —
Total long-term
liabilities 258.8 191.1
Other long-term assets 63.0 42.0 Total liabilities 401.4 323.1
Total long-term assets 362.1 242.7 Stockholders‘ Equity 126.7 63.6
Total Assets 528.1 386.7
Total liabilities and
Stockholders’ Equity 528.1 386.7
Refer to the balance sheet above. If in 2006 Luther has 10.2 million shares outstanding and
these shares are trading at $16 per share, then Luther’s market-to-book ratio would be
closest to ________.
A) 2.58
B) 0.64
C) 1.29
D) 1.80
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised
15
3) Luther Corporation
Consolidated Balance Sheet
December 31, 2006 and 2005 (in $ millions)
Assets 2006 2005
Liabilities and
Stockholders’ Equity 2006 2005
Current Assets Current Liabilities
Cash 65.6 58.5 Accounts payable 88.8 73.5
Accounts receivable 54.3 39.6
Notes payable / short-
term debt 10.7 9.6
Inventories 45.8 42.9
Current maturities of
long-term debt 38.7 36.9
Other current assets 5.5 3.0 Other current liabilities 6.0 12.0
Total current assets 171.2 144.0
Total current
liabilities 144.2 132.0
Long-Term Assets Long-Term Liabilities
Land 65.3 62.1 Long-term debt 234.4 168.9
Buildings 109.4 91.5
Capital lease
obligations
Equipment 116.3 99.6
Less accumulated
depreciation (57.9) (52.5) Deferred taxes 22.8 22.2
Net property, plant, and
equipment 233.1 200.7
Other long-term
liabilities — —
Goodwill 60.0 —
Total long-term
liabilities 257.2 191.1
Other long-term assets 63.0 42.0 Total liabilities 401.4 323.1
Total long-term assets 356.1 242.7 Stockholders‘ Equity 125.9 63.6
Total Assets 527.3 386.7
Total liabilities and
Stockholders’ Equity 527.3 386.7
Refer to the balance sheet above. When using the book value of equity, the debt-equity ratio
for Luther in 2006 is closest to ________.
A) 4.51
B) 2.25
C) 1.13
D) 3.16
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised
16
4) Luther Corporation
Consolidated Balance Sheet
December 31, 2006 and 2005 (in $ millions)
Assets 2006 2005
Liabilities and
Stockholders’ Equity 2006 2005
Current Assets Current Liabilities
Cash 57.6 58.5 Accounts payable 86.0 73.5
Accounts receivable 55.2 39.6
Notes payable / short-
term debt 10.5 9.6
Inventories 45.6 42.9
Current maturities of
long-term debt 39.6 36.9
Other current assets 5.6 3.0 Other current liabilities 6.0 12.0
Total current
assets 164.0 144.0
Total current
liabilities 142.1 132.0
Long-Term Assets Long-Term Liabilities
Land 66.4 62.1 Long-term debt 231.3 168.9
Buildings 108.3 91.5
Capital lease
obligations
Equipment 114.3 99.6
Less accumulated
depreciation (54.4) (52.5) Deferred taxes 22.8 22.2
Net property, plant, and
equipment 234.6 200.7
Other long-term
liabilities — —
Goodwill 60.0 —
Total long-term
liabilities 254.1 191.1
Other long-term assets 63.0 42.0 Total liabilities 396.2 323.1
Total long-term assets 357.6 242.7 Stockholders‘ Equity 125.4 63.6
Total Assets 521.6 386.7
Total liabilities and
Stockholders’ Equity 521.6 386.7
Refer to the balance sheet above. If in 2006 Luther has 10.2 million shares outstanding and
these shares are trading at $16 per share, then using the market value of equity, the debt-
equity ratio for Luther in 2006 is closest to ________.
A) 3.45
B) 1.72
C) 0.86
D) 2.41
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised
5) Luther Corporation
Consolidated Balance Sheet
December 31, 2006 and 2005 (in $ millions)
Assets 2006 2005
Liabilities and
Stockholders’ Equity 2006 2005
17
Current Assets Current Liabilities
Cash 56.1 58.5 Accounts payable 88.1 73.5
Accounts receivable 54.5 39.6
Notes payable / short-
term debt 10.9 9.6
Inventories 44.8 42.9
Current maturities of
long-term debt 40.7 36.9
Other current assets 5.0 3.0 Other current liabilities 6.0 12.0
Total current
assets 160.4 144.0
Total current
liabilities 145.7 132.0
Long-Term Assets Long-Term Liabilities
Land 66.8 62.1 Long-term debt 227 168.9
Buildings 108.5 91.5
Capital lease
obligations
Equipment 117.1 99.6
Less accumulated
depreciation (54.4) (52.5) Deferred taxes 22.8 22.2
Net property, plant, and
equipment 238 200.7
Other long-term
liabilities — —
Goodwill 60.0 —
Total long-term
liabilities 249.8 191.1
Other long-term assets 63.0 42.0 Total liabilities 395.5 323.1
Total long-term assets 361 242.7 Stockholders’ Equity 125.9 63.6
Total Assets 521.4 386.7
Total liabilities and
Stockholders’ Equity 521.4 386.7
Refer to the balance sheet above. If in 2006 Luther has 10.2 million shares outstanding and
these shares are trading at $16 per share, then what is Luther’s enterprise value?
A) -$540.0 million
B) $771.4 million
C) $385.7 million
D) $521.4 million
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised
18
6) Luther Corporation
Consolidated Balance Sheet
December 31, 2006 and 2005 (in $ millions)
Assets 2006 2005
Liabilities and
Stockholders’ Equity 2006 2005
Current Assets Current Liabilities
Cash 53.6 58.5 Accounts payable 89.2 73.5
Accounts receivable 55.8 39.6
Notes payable / short-
term debt 10.3 9.6
Inventories 45.5 42.9
Current maturities of
long-term debt 38.6 36.9
Other current assets 5.4 3.0 Other current liabilities 6.0 12.0
Total current
assets 160.3 144.0
Total current
liabilities 144.1 132.0
Long-Term Assets Long-Term Liabilities
Land 66.2 62.1 Long-term debt 228.7 168.9
Buildings 107.7 91.5
Capital lease
obligations
Equipment 120.6 99.6
Less accumulated
depreciation (57.1) (52.5) Deferred taxes 22.8 22.2
Net property, plant, and
equipment 237.4 200.7
Other long-term
liabilities — —
Goodwill 60.0 —
Total long-term
liabilities 251.5 191.1
Other long-term assets 63.0 42.0 Total liabilities 395.6 323.1
Total long-term assets 360.4 242.7 Stockholders’ Equity 125.1 63.6
Total Assets 520.7 386.7
Total liabilities and
Stockholders’ Equity 520.7 386.7
Refer to the balance sheet above. Luther’s current ratio for 2006 is closest to ________.
A) 1.67
B) 2.22
C) 0.56
D) 1.11
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised
19
7) Luther Corporation
Consolidated Balance Sheet
December 31, 2006 and 2005 (in $ millions)
Assets 2006 2005
Liabilities and
Stockholders’ Equity 2006 2005
Current Assets Current Liabilities
Cash 65.7 58.5 Accounts payable 87.7 73.5
Accounts receivable 54.4 39.6
Notes payable / short-
term debt 9.6 9.6
Inventories 46.1 42.9
Current maturities of
long-term debt 39.9 36.9
Other current assets 5.1 3.0 Other current liabilities 6.0 12.0
Total current
assets 171.3 144.0
Total current
liabilities 143.2 132.0
Long-Term Assets Long-Term Liabilities
Land 66.6 62.1 Long-term debt 237.7 168.9
Buildings 106.2 91.5
Capital lease
obligations
Equipment 119.3 99.6
Less accumulated
depreciation (56.6) (52.5) Deferred taxes 22.8 22.2
Net property, plant, and
equipment 235.5 200.7
Other long-term
liabilities — —
Goodwill 60.0 —
Total long-term
liabilities 260.5 191.1
Other long-term assets 63.0 42.0 Total liabilities 403.7 323.1
Total long-term assets 358.5 242.7 Stockholders’ Equity 126.1 63.6
Total Assets 529.8 386.7
Total liabilities and
Stockholders’ Equity 529.8 386.7
Refer to the balance sheet above. Luther’s quick ratio for 2006 is closest to ________.
A) 0.87
B) 1.75
C) 0.88
D) 1.31
AACSB Objective: Analytic Skills
Author: JN
Question Status: Revised
20