Corporate Finance Balance Sheet Quiz

Equity equals: Assets - Liabilities. Liabilities - Assets. Assets + Liabilities

Assets - Liabilities.

Based on Exhibit 1, which ratio indicates lower liquidity risk for Company A compared with Company B?: Cash ratio Quick ratio Current ratio

Cash ratio

Based on Exhibit 1, which statement is most likely correct?: Company A has below-average liquidity risk. Company B has above-average solvency risk. Company A has made one or more acquisitions.

Company A has made one or more acquisitions.

When a company buys shares of its own stock to be held in treasury, it records a reduction in: both assets and liabilities. both assets and shareholders' equity. assets and an increase in shareholders' equity.

both assets and shareholders' equity.

Defining total asset turnover as revenue divided by average total assets, all else equal, impairment write-downs of long-lived assets owned by a company will most likely result in an increase for that company in: the debt-to-equity ratio but not the total asset turnover. the total asset turnover but not the debt-to-equity ratio. both the debt-to-equity ratio and the total asset turnover.

both the debt-to-equity ratio and the total asset turnover.

The most stringent test of a company's liquidity is its: cash ratio. quick ratio. current ratio.

cash ratio.

An investor concerned whether a company can meet its near-term obligations is most likely to calculate the: current ratio. return on total capital. financial leverage ratio.

current ratio.

Debt due within one year is considered: current. preferred. convertible.

current.

An investor worried about a company's long-term solvency would most likely examine its: current ratio. return on equity. debt-to-equity ratio.

debt-to-equity ratio.

The most likely costs included in both the cost of inventory and property, plant, and equipment are: selling costs. storage costs. delivery costs.

delivery costs.

Accrued expenses (accrued liabilities) are: expenses that have been paid. created when another liability is reduced. expenses that have been reported on the income statement but not yet paid.

expenses that have been reported on the income statement but not yet paid.

All of the following are current assets except: cash. goodwill. inventories.

goodwill.

The item "retained earnings" is a component of: assets. liabilities. shareholders' equity.

shareholders' equity.

Shareholders' equity reported on the balance sheet is most likely to differ from the market value of shareholders' equity because: historical cost basis is used for all assets and liabilities. some factors that affect the generation of future cash flows are excluded. shareholders' equity reported on the balance sheet is updated continuously.

some factors that affect the generation of future cash flows are excluded.

The carrying value of inventories reflects: their historical cost. their current value. the lower of historical cost or net realizable value.

the lower of historical cost or net realizable value.

Which of the following would an analyst most likely be able to determine from a common-size analysis of a company's balance sheet over several periods? An increase or decrease in sales. An increase or decrease in financial leverage. A more efficient or less efficient use of assets.

An increase or decrease in financial leverage.

Based on Exhibit 1, the financial leverage ratio for Company B is closest to: 0.55. 1.22. 2.22.

2.22.