Deck 8: The Balance Sheet: Content, Use and Analysis

Question 1

The income statement and balance sheet provide different, yet ____________________ types of information.

Answer 1

related

Question 2

The balance sheet provides information that helps internal and external users evaluate a business' ability to achieve its primary goals of earning a satisfactory profit and remaining _____________.

Answer 2

solvent

Question 3

The accounting equation is assets = ____________________ + owner's equity.

Answer 3

liabilities

Question 4

The balance sheet is an accounting report that summarises a business' financial________________ on a given date.

Question 5

A ____________________ balance sheet shows subtotals for assets, liabilities and owner's equity in related groupings.

Question 6

____________________ are a business' economic resources that it expects will provide future benefits to the business.

Question 7

___________ _________ are cash and other assets that the business expects to convert to cash, sell, or use up within one year.

Question 8

__________ __________ is the total amount of depreciation expense recorded over the life of an asset to date.

Question 9

____________ are assets that do not have a physical substance but the ownership of which entitles the business to future economic benefits.

Question 10

____________________ are the economic obligations (debts) of a business.

Question 11

____________________ are the external parties to whom the business owes economic obligations.

Question 12

____________________ are obligations that the business expects to pay within one year by using current assets.

Question 13

Accounts payable, salaries payable, unearned revenues, and short-term notes payable are all examples of ______________ _______________.

Question 14

__________ __________ are amounts owed to suppliers.

Question 15

Owner's equity is the owner's current ____________________ in the assets of the business.

Question 16

Managers are concerned with the business' balance sheet because it is used to evaluate their own ____________________.

Question 17

As a general rule, the _______________ the inventory turnover, the more efficient the business is in its purchasing and sales activities.

Question 18

The ____________ __________________ ______________ measures how efficiently a business collects cash from its credit customers.

Question 19

The balance sheet doesn't always show each asset's ____________ value.

Question 20

The balance sheet presents a business' financial position on a specific date such as '30 June 2019'.

Question 21

In order to be classified as an asset the resource must provide future benefit.

Question 22

Any asset not classified as a current asset is referred to as a past due asset.

Question 23

Financial assets, like bonds and other securities, are always classified as current assets.

Question 24

The non-current liabilities section of the balance sheet shows the past financing decisions of the business' managers.

Question 25

Liquidity refers to a firm's ability to use assets to pay off owners under owner's equity.

Question 26

Total assets of $48 400 less total liabilities of $36 300 will equal working capital of $12 100.

Question 27

Current assets of $68 400 less current liabilities of $36 300 will equal working capital of $32 100.

Question 28

The advantage of using the current ratio to measure liquidity is that is allows for a relative comparison between different sized businesses.

Question 29

The current ratio is an indicator of a business' short-term operating capability.

Question 30

The current ratio is an indicator of a business' long-term financial flexibility.

Question 31

The higher a business' debt ratio, the higher its financial flexibility.

Question 32

Many significant business questions can be answered by analysing a business' income statement and balance sheet together.

Question 33

The return on total assets evaluates management's use of resources, essentially evaluating the return on the owner's investment.

Question 34

The return on owner's equity ratio does not add interest expense back to net income, because net income is a measure of a business' profits available to owners.

Question 35

Activity ratios help evaluate the operating capability of a business.

Question 36

The inventory turnover ratio is used to evaluate inventory purchasing decisions with, for example, a high inventory turnover ratio indicating that stockouts (empty shelves) could be occurring.

Question 37

The accounts receivable turnover ratio should be high, which shows that the business collects cash faster.

Question 38

A limitation of the income statement and balance sheet is that they do not provide much information about a business' cash management because they are based on accrual accounting.

Question 39

A business activity statement (BAS) is used for reconciling the goods and services tax instalments, pay-as-you-go instalments, company tax instalments and fringe benefits tax instalments.

Question 40

Which of the following is a financial statement that reports the types and the monetary amounts of a business' assets, liabilities, and owner's equity on a specific date?

A) Cash flows statement
B) Income statement
C) Balance sheet
D) Statement of changes in owner's equity

Question 41

Which of the following is NOT a question that can be answered with the balance sheet?

A) How much do customers owe the business?
B) How much inventory does the business have?
C) Does the business own the building they are in?
D) How much profit did the business make this month?

Question 42

Economic resources are to ______, as claims on economic resources are to liabilities and owner's equity.

A) Cash
B) Income
C) Assets
D) Expenses

Question 43

The definition of assets is best summarised as:

A) tangible resources that are owned by a business.
B) all resources owned by a business.
C) resources that a business expects will provide future benefits.
D) owner's investments in a business.

Question 44

"Quick" assets, as used in the quick ratio, usually include:

A) cash.
B) marketable securities.
C) accounts payable.
D) accounts receivable.

Question 45

Which of the following would NOT be classified as a non-current asset?

A) long-term loan from a bank.
B) plant and equipment.
C) long-term investment in another company.
D) intangible asset.

Question 46

Liabilities are generally classified as:

A) short-term and medium-term.
B) current and non-current.
C) now and future.
D) Liquid and illiquid.

Question 47

A measure of how quickly a business can convert its assets into cash to pay its bills is called:

A) solvency.
B) flexibility.
C) working capital.
D) liquidity.

Question 48

The current ratio is current assets divided by:

A) quick assets.
B) current liabilities.
C) quick liabilities.
D) total liabilities.

Question 49

The higher a business' debt ratio, the lower its:

A) financial flexibility.
B) liquidity.
C) working capital.
D) total liabilities.

Question 50

The return on total assets assesses:

A) the mix of debt and equity in a business.
B) the return for owners.
C) how efficiently a business has used its economic resources.
D) how many assets a business needs to replace.

Question 51

In relation to 'inventory turnover', the general rule is:

A) the higher the turnover, the more efficient a business is.
B) the lower the turnover, the more efficient a business is.
C) the higher the turnover, the more inventory a business has.
D) the lower the turnover, the more inventory a business has.

Question 52

The number of days in the collection period should be:

A) as high as possible.
B) as low as possible.
C) the same as the previous period.
D) the same as the budgeted number of days.

Question 53

Which of the following items is NOT reported on the balance sheet as an asset?

A) Employees.
B) Investments in other businesses.
C) Trademarks.
D) Purchased goodwill.

Question 54

Example 8.1
The information below pertains to the following questions.
ABC reported $356 500 for current assets and $100 500 for other assets. It also had $175 000 of current liabilities. ABC's quick assets totalled $222 000, and its long-term liabilities totalled $105 000.

-Refer to Example 8.1. Determine ABC's working capital.

A) $256 000
B) $181 500
C) $457 000
D) $31 000

Question 55

Example 8.1
The information below pertains to the following questions.
ABC reported $356 500 for current assets and $100 500 for other assets. It also had $175 000 of current liabilities. ABC's quick assets totalled $222 000, and its long-term liabilities totalled $105 000.

-Refer to Example 8.1. Determine ABC's current ratio.

A) 0.79:1
B) 1.27:1
C) 2.04:1
D) 3:22:1

Question 56

Example 8.1
The information below pertains to the following questions.
ABC reported $356 500 for current assets and $100 500 for other assets. It also had $175 000 of current liabilities. ABC's quick assets totalled $222 000, and its long-term liabilities totalled $105 000.

-Refer to Example 8.1. Determine ABC's quick ratio.

A) 0.79:1
B) 1.27:1
C) 2.04:1
D) 3:22:1

Question 57

Why is the balance sheet important?

Question 58

Why do internal and external users need the information contained in both the income statement and the balance sheet?

Question 59

What are current assets? Provide four examples of current assets.

Question 60

What are long-term investments? Provide four examples of long-term investments.

Question 61

What are non-current liabilities? Provide three examples.

Question 62

What is the debt ratio, how is it calculated, and why is it important?

Question 63

How are profitability ratios used to evaluate businesses? Describe two common profitability ratios.

Question 64

What is operating capability? What are two commonly used measures of operating capability?

Question 65

Bill's Crafts reported $36 500 for current assets and $10 500 for other assets. The business also had $15 000 of current liabilities. Quick assets totalled $9000, and long-term liabilities totalled $25 000.
a. What was Bill's current ratio?
b. What was Bill's quick ratio?
c. What was Bill's debt ratio?
d. What was Bill's owner's equity?

Question 66

Jason's Soccer Shop had net income of $600 000, interest expense of $40 000, average owner's equity of $125 000, and average total assets of $250 000.
a. Determine Jason's return on assets.
b. Determine Jason's return on owner's equity.