Corporate Finance 12th Edition By Stephen Ross, Randolph Westerfield Corporate Finance, 12e (Ross) Chapter 2 Financial Statements and Cash Flow 1) Which one of these accounts appears on the right-hand side of a balance sheet? A) Property, plant, and equipment B) Accumulated retained earnings C) Accumulated depreciation D) Cash and equivalents E) Intangible assets Answer: B Difficulty: 1 Easy Section: 2.1 The Balance Sheet Topic: Balance sheet Bloom's: Understand AACSB: Reflective Thinking Accessibility: Keyboard Navigation 2) The entire book value of the residual ownership of a corporation is known as the: A) total equity. B) intangible assets. C) retained earnings. D) capital surplus. E) total assets. Answer: A Difficulty: 1 Easy Section: 2.1 The Balance Sheet Topic: Balance sheet Bloom's: Understand AACSB: Reflective Thinking Accessibility: Keyboard Navigation 3) Which account represents the book value of all of a corporation's net profits less its dividend payments? A) Capital surplus B) Accumulated retained earnings C) Treasury stock D) Common stock E) Preferred stock Answer: B Difficulty: 1 Easy Section: 2.1 The Balance Sheet Topic: Balance sheet Bloom's: Understand AACSB: Reflective Thinking Accessibility: Keyboard Navigation 4) Which one of the following is a current liability? A) Amount due to a supplier in 18 months B) Note payable in nine months C) Estimated taxes just paid D) Loan payment due in 13 months E) Amount due from a customer in 30 days Answer: B Difficulty: 1 Easy Section: 2.1 The Balance Sheet Topic: Balance sheet Bloom's: Understand AACSB: Reflective Thinking Accessibility: Keyboard Navigation 5) An increase in total assets: A) means that net working capital is also increasing. B) requires an investment in fixed assets. C) means that stockholders' equity must also increase. D) must be offset by an equal increase in liabilities and stockholders' equity. E) can only occur when a firm has positive net income. Answer: D Difficulty: 1 Easy Section: 2.1 The Balance Sheet Topic: Balance sheet Bloom's: Understand AACSB: Reflective Thinking Accessibility: Keyboard Navigation 6) Which one of the following assets is generally the most liquid? A) Inventory B) Buildings C) Accounts receivable D) Equipment E) Patents Answer: C Difficulty: 1 Easy Section: 2.1 The Balance Sheet Topic: Liquidity Bloom's: Understand AACSB: Reflective Thinking Accessibility: Keyboard Navigation 7) Which one of the following statements concerning liquidity is correct? A) Liquid assets generally earn higher rates of return than fixed assets. B) If you can sell an asset next year at a price equal to its actual value, the asset is highly liquid. C) Liquid assets are defined as those assets obtained within the past year. D) The less liquidity a firm has, the lower the probability the firm will encounter financial difficulties. E) Balance sheet accounts are listed in order of decreasing liquidity. Answer: E Difficulty: 1 Easy Section: 2.1 The Balance Sheet Topic: Liquidity Bloom's: Understand AACSB: Reflective Thinking Accessibility: Keyboard Navigation 8) Liquidity is: A) a measure of the use of debt in a firm's capital structure. B) equal to current assets minus current liabilities. C) equal to the market value of a firm's total assets minus its total liabilities. D) valuable to a firm even though liquid assets tend to be less profitable to own. E) generally most associated with intangible assets. Answer: D Difficulty: 1 Easy Section: 2.1 The Balance Sheet Topic: Liquidity Bloom's: Understand AACSB: Reflective Thinking Accessibility: Keyboard Navigation 9) Which one of the following accounts is included in stockholders' equity? A) Long-term debt B) Deferred taxes C) Plant and equipment D) Accumulated retained earnings E) Dividends paid Answer: D Difficulty: 1 Easy Section: 2.1 The Balance Sheet Topic: Balance sheet Bloom's: Remember AACSB: Reflective Thinking Accessibility: Keyboard Navigation 10) Book value: A) is equivalent to market value for firms with fixed assets. B) is based on historical cost. C) generally tends to exceed market value when fixed assets are included. D) is more of a financial than an accounting valuation. E) is adjusted whenever the market value of an asset changes. Answer: B Difficulty: 1 Easy Section: 2.1 The Balance Sheet Topic: Market and book values Bloom's: Understand AACSB: Reflective Thinking Accessibility: Keyboard Navigation 11) If you sell an asset, you are most apt to receive which value for that asset? A) Market value B) Original cost minus accumulated depreciation C) Historical value D) Book value E) Carrying value Answer: A Difficulty: 1 Easy Section: 2.1 The Balance Sheet Topic: Market and book values Bloom's: Remember AACSB: Reflective Thinking Accessibility: Keyboard Navigation 12) Which one of these equations is an accurate expression of the balance sheet? A) Assets ≡ Liabilities − Stockholders' equity B) Stockholders' equity ≡ Assets + Liabilities C) Liabilities ≡ Stockholders' equity − Assets D) Assets ≡ Stockholders' equity − Liabilities E) Stockholders' equity ≡ Assets − Liabilities Answer: E Difficulty: 1 Easy Section: 2.1 The Balance Sheet Topic: Balance sheet Bloom's: Remember AACSB: Reflective Thinking Accessibility: Keyboard Navigation 13) Which one of these accounts is classified as a fixed asset on the balance sheet? A) Intangible assets B) Accounts payable C) Preferred stock D) Inventory E) Accounts receivable Answer: A Difficulty: 1 Easy Section: 2.1 The Balance Sheet Topic: Balance sheet Bloom's: Remember AACSB: Reflective Thinking Accessibility: Keyboard Navigation 14) On a balance sheet, deferred taxes are classified as: A) stockholders' equity. B) a current asset. C) a long-term liability. D) a fixed asset. E) a current liability. Answer: C Difficulty: 1 Easy Section: 2.1 The Balance Sheet Topic: Balance sheet Bloom's: Remember AACSB: Reflective Thinking Accessibility: Keyboard Navigation 15) If a firm's financial managers successfully meet their primary goal, then the firm's: A) debts will exceed its equity. B) market value will exceed its book value. C) net working capital will exceed its long-term debt. D) carrying value will exceed its market value. E) equity will exceed its assets. Answer: B Difficulty: 1 Easy Section: 2.1 The Balance Sheet Topic: Market and book values Bloom's: Remember AACSB: Reflective Thinking Accessibility: Keyboard Navigation