CF Chap 2

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

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.

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

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

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.

Which one of the following assets is generally the most liquid?

• A) Inventory
• B) Buildings
• C) Accounts receivable
• D) Equipment
• E) Patents

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.

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.

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

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