Principle Finance Week 2 HW

Liquidity refers to the ease of changing _____.

assets to cash

Most importantly, assets provide ______ to the firm.

value

In order of account value from smallest to largest

In order of decreasing liquidity

Which of the following are fixed assets?

Buildings, Plant, Land

Which of these questions can be answered by reviewing a firm's balance sheet? - How much of the firm's net income was paid out in dividends? - How much debt is used to finance the firm? - What is the total amount of assets the firm owns? - How much net income has the firm earned this period?

- How much debt is used to finance the firm? - What is the total amount of assets the firm owns?

Assets can be described as items that _____. - provide market value to the firm - generate revenue - a firm owns - are always the same amount as a firm's liabilities

- provide market value to the firm - generate revenue - a firm owns

What does a balance sheet reflect about a firm? - Income over a specified time period - Earnings per share over a specified time period - Economic value at a specific point in time - Accounting value on a specific date

Accounting value on a specific date

A customer has yet to pay the bill for products purchased on credit. The seller records this debt in which balance sheet account?

Accounts receivable

When a customer purchases an item on credit, the purchase amount is recorded by the seller in which one of these accounts?

Accounts receivable

Which one of the following is true? - Earnings, net income, and cash flows are identical. - Financial statements explicitly show cash flows. - Cash flows can be derived from financial statements. - Cash flows always exceed earnings.

Cash flows can be derived from financial statements.

How are assets on a balance sheet listed?

In order of decreasing liquidity

Why is positive net working capital important?

It means the firm should have sufficient cash to meet its current obligations.

______refers to the speed and ease with which an asset can be converted to cash.

Liquidity

The difference between the total assets and total liabilities is shareholders' equity, also called-------equity or ------

common, owners

The accounting equation shows that stockholders' equity equals assets ______ liabilities.

minus

Net working capital is ____________ (negative/positive) when current assets exceed current liabilities.

postive

Another name for short-term financial management is ___ management.

working capital

Current assets are defined as assets that can be turned into cash within ______ months.

twelve

Which of the following are classified as liabilities on a firm's balance sheet? - Inventory - Accounts receivable - Accounts payable - Notes payable

Notes payable Accounts payable

a long-term liability represents a(n) _____.

debt that is not due in the coming year

Financial statements are frequently a key source of information for financial decisions.

True

Long-term liabilities are not due in the current year (from the date of the balance sheet).

True

What does stockholders' equity represent?

A claim against all of the firm's assets

Net working capital equals current assets ______ current liabilities.

minus

On a balance sheet, total assets must always equal total liabilities plus ______.

shareholders' equity