Question 1

Which of the following financial statements includes information about a firm's assets, equity, and liabilities?

Accepted Answer

The balance sheet is the only financial statement that includes information about a firm's assets, equity, and liabilities. The income statement shows revenue, expenses, and net income, while the cash flow statement shows cash inflows and outflows. The statement of retained earnings reflects changes in a company's retained earnings. The statement of changes in long-term financing shows changes in a firm's long-term financing sources.

Question 2

Which of the following statements is true about net worth?

Accepted Answer

Net worth is calculated by subtracting total liabilities from total assets. It represents the amount of assets that will remain in the business after all liabilities are paid off. Options A, B, D, and E are incorrect because they do not accurately define net worth.

Question 3

How is the book value per share calculated?

Accepted Answer

The book value per share is calculated by dividing the common equity by the total number of shares outstanding. Common equity represents the residual interest of the shareholders in the assets of the company after deducting liabilities. Book value per share is an important measure of the value of a company's shares and is used to assess the company's net worth.

Question 4

Ruby Enterprises Ltd. has long-term bonds worth $20 million, retained earnings of $45 million, accounts payable of $10 million, notes payable of $12 million, and inventory worth $18 million. What is the value of total liabilities of Ruby Enterprises?

Accepted Answer

Total liabilities include long-term bonds, accounts payable, and notes payable, which sum up to $20 million + $10 million + $12 million = $42 million.

Question 5

Which of the following information in an annual report describes the firm's performance during the past year and also provides information regarding new developments that will affect future performance of the firm?

Accepted Answer

The discussion of operations section typically provides a review of the company's performance during the past year, along with new developments and initiatives that will impact future performance. The basic financial statements (choice A) provide information on the company's financial position, but do not necessarily provide insight into future performance. Proxy statements (choice C) relate to the election of the board of directors, executive compensation, and other governance matters. The DuPont chart (choice D) is a tool used to analyze a company's return on equity, but does not necessarily provide information about new developments. A memorandum of understanding (choice E) is a non-binding agreement between parties outlining the intent to enter into a formal agreement, and is not typically included in an annual report.

Question 6

Which of the following is considered as a liability in the balance sheet of a firm?

Accepted Answer

Corporate bonds are considered as liability in the balance sheet of a firm as they represent the amount of money that the firm has borrowed from investors and needs to pay back with interest. Accounts receivable represents the money owed to the firm by its customers, retained earnings are the profits that the firm has accumulated over time, common stock represents the ownership stake of shareholders, and plant and equipment are assets of the firm.

Question 7

In which order will assets be listed in a balance sheet?

Accepted Answer

Assets will typically be listed in order of liquidity, meaning the most liquid assets will be listed first (such as cash and cash equivalents), followed by less liquid assets (such as inventory and property, plant, and equipment). This order provides information on the availability of funds in the short term, which is useful for assessing a company's financial health.

Question 8

Which of the following statements shows the portion of the firm's earnings that has been saved rather than paid out as dividends?

Accepted Answer

The statement of retained earnings shows the portion of a firm's earnings that has been saved instead of paid out as dividends. It shows changes in retained earnings during a specific accounting period and is a component of a company's financial statements. The balance sheet shows the firm's assets, liabilities, and equity at a specific point in time; the income statement shows the firm's revenues and expenses over a specific period; the statement of cash flows shows the firm's cash inflows and outflows over a specific period; and the proxy statement provides information to shareholders about matters that will be voted on at a company's annual meeting.

Question 9

The book value of 4 million shares of Zircon Global Ltd. is $34 million. What is the book value per share of Zircon Global Ltd?

Accepted Answer

To find the book value per share, we need to divide the total book value by the number of shares. 
Book value per share = Total book value / Number of shares
= $34 million / 4 million shares 
= $8.50 per share. 
Therefore, the answer is B.

Question 10

Which of the following statements is true about the annual report of a company?

Accepted Answer

The answer of Which of the following statements is true...

Question 11

_____ is an example of a long-term investment of a firm.

Accepted Answer

The answer of _____ is an example of a long-term...

Question 12

Which of the following financial statements shows a firm's financing activities (how funds were generated) and investment activities (how funds were used) over a particular period of time?

Accepted Answer

The statement of cash flows shows a firm's financing activities and investment activities over a particular period of time, including where funds were generated and how they were used. The other options listed provide different types of financial information, but do not specifically cover these areas.

Question 13

Which of the following is an example of a current asset?

Accepted Answer

Inventory is a current asset because it is expected to be sold or used up within one year or within the normal course of business operations. Retained earnings, accounts payable, plant and equipment, and common stock are not current assets.

Question 14

The amount received by a firm's stockholders if the firm were to liquidate its assets and pay off all of its outstanding debt is the firm's:

Accepted Answer

The amount received by the firm's stockholders after the payment of all outstanding debts is the net worth or the book value of the firm. This represents the assets' residual worth and is equivalent to the shareholders' equity. Therefore, option A is the correct answer. Retained earnings, cash equivalents, accruals, and market value are not relevant to the calculation of the net worth of a firm.

Question 15

Which of the following actions can be considered a source of cash when constructing a statement of cash flows?

Accepted Answer

An increase in long-term bonds is considered a source of cash because it indicates that the company has issued more bonds, thereby receiving cash in exchange.

Question 16

Which of the following is an example of a firm's long-term debt?

Accepted Answer

Corporate bonds are a type of long-term debt issued by a firm. Common stock represents ownership in a company and is not a form of debt. Retained earnings are profits that have been reinvested in the company and do not represent external financing. Accounts payable and accounts receivable are short-term liabilities and assets, respectively.

Question 17

The book value per share of Topaz General Ltd. is $10 per share and the company has a total of 4 million shares. Calculate the total book value of common equity of the company.

Accepted Answer

The total book value of common equity of the company can be calculated by multiplying the book value per share by the total number of shares. Therefore, the total book value of common equity of the company is $10 x 4 million = $40 million.

Question 18

Which of the following accounts contains the actual money that can be spent by a firm?

Accepted Answer

Cash and equivalents represent the actual money that a firm has available to spend. Retained earnings, net worth, common stock, and notes payable are all accounting measures that do not necessarily represent actual cash on hand.

Question 19

How is the net worth of a firm calculated?

Accepted Answer

The net worth of a firm is calculated by subtracting the total liabilities from the total assets. This is because net worth represents the amount of equity or ownership that the owners or shareholders have in the company. By subtracting the liabilities from the assets, we can arrive at the net value of the firm's assets that are owned outright by the owners.

Question 20

Amber Devices Ltd. has total assets worth $850 million and total liabilities worth $475 million at the end of December 31, 2016. What is the amount of money received by the stockholders, if Amber liquidates all of its assets and pays off all of its outstanding debt?

Accepted Answer

The stockholders would receive the remaining amount after paying off the liabilities from the total assets. Total assets ($850 million) minus total liabilities ($475 million) equals $375 million.

Quiz 2: Analysis of Financial Statements