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C
HAPTER
3
The Balance Sheet and
Notes to the Financial Statements
M
ULTIPLE
C
HOICE
Q
UESTIONS
Theory/Definitional Questions
1
Definition of solvency
2
Definition of a liability
3
Accrued revenues as current assets
4
Classification of current assets
5
Presentation order of current assets
6
Unearned rent as current liability
7
Classification of investment securities
8
Identification of long-term investments
9
Example of change in liability from current to noncurrent
10
Example of change in liability from noncurrent to current
11
Classification of current liabilities
12
Elements of
working capital
13
Contingent liability--pending litigation
14
Definition of an asset
15
Share information reported on the balance sheet
16
Recording a loss contingency
17
Items not included in stockholders' equity
18
Definition of contributed capital
19
Recording a loss contingency
20
Disclosing
a loss contingency
21
Definition of subsequent event
22
Limitations and weaknesses of a balance sheet
23
Definition of the operating cycle
Computational Questions
24
Computation based on the accounting equation
25
Computation of stockholders' equity
26
Computation of net income from the accounting equation
27
Computation of current liabilities
28
Computation of borrowing ability using debt-to-equity ratio
63

Chapter 3
The Balance Sheet and Notes to the Financial Statements
29
Computation of rate of return on assets
30
Computation of current ratio changes
31
Computation of current assets
32
Computation of current assets
33
Computation of current liabilities
34
Computation of working capital
35
Computation of net assets
36
Computation of total liabilities
37
Computation of total assets
38
Computation of current liabilities
39
Computation of stockholders' equity
40
Computation of acid test ratio
41
Computation of stockholders' equity
42
Computation of additional paid-in capital
43
Computation of stockholders' equity
44
Computation of current ratio
45
Effect of collection of accounts receivable on current ratio
46
Computation of return on investment
47
Computation of acid-test (quick) ratio
P
ROBLEMS
1
Prepare schedule of working capital
2
Prepare properly classified balance sheet in report form
3
Prepare properly classified balance sheet, identify items to be disclosed
4
Prepare corrected and properly classified balance sheet
5
Correct account balances, give totals for current assets, liabilities
6
Correct account balances, give totals for long-term assets, liabilities
7
Calculate account balances, give total of assets
8
Calculate account balances, give total of liabilities
9
Summary of accounting policies
10
Accounting for human resources
11
Reporting receivables on the balance sheet
12
Limitations of the balance sheet
M
ULTIPLE
C
HOICE
Q
UESTIONS
a
1.
Balance sheet analysis is useful in assessing a firm's liquidity, which is the
LO1
ability to
a. satisfy short-term obligations.
b. main profitable operations.

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