Corporate Finance, 12e (Ross)

,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