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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