Practice Problems 259 PRACTICE PROBLEMS 1. Resources controlled by a company as result of past events are: A equity. B assets © Tiabilitis. 2 Equity equals: A Assets ~ Liabilities. B Liabilities ~ Assets. Assets + Liabilities, 3. Distinguishing between current and non-current items on the balance sheet and presenting a subtotal for current assets and liabilities is referred to a A a classified balance sheet B_ an unclassified balance sheet alliquidity-based balance sheet. 4 Allofthe following are current assets except: A cash B goodwill © inventories. 5 Debt due within one year is considered A current, B_ preferred. © convertible. 6 Money received from customers for products to be delivered in the future is recorded as: A revenue and an asset. Ram asset and liail © revenue anda li ility. 7 ‘The carrying value of inventories reflects: A. their historical cost B_ their current value, the lower of historical cost or net realizable value, 3 Whena tion in: ‘ompany pays its rent in advance, ts balance sheet will reflect a reduc A. assets and liabilities B_ assets and shareholders’ equity. © one category of assets and an increase in another. 9 Accrued expenses (accrued liabilities) are: A expenses that have been paid. B created when another liability is reduced. expenses that have been reported on the 10 ‘thi \come statement but not yet paid, measurement of goodwill is most likely affected by: (©2011 CEA Institute, Al ighsreserved260 u n B 4 6 6 w 8 1” Reading 25 = Understanding Balance Sheets Aan acquisition’s purchase price, B the acquired company’s book value. the fair value of the acquirer’s assets and liabilities 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 inan increase for that company in: A the debt-to-equity ratio but not the total asset turnover. B the total asset turnover but not the debt-to-equity ratio, © oth the debt to-equity ratio and the total wet turnover For financial assets classified as trading securities, how are unrealized gains and losses reflected in shareholders’ equity? A “They are not recognized. B_ ‘They flow through income into retained earnings, © ‘They are a component of accumulated other comprehensive income. Yor financial assets classified as available for sale, how are unrealized gains and losses reflected in sharcholders' equity? A “They are not recognized. B They flow through retained earnings. ‘they are a component of accumulated other comprehensive income. For financial assets ckassified as held to maturity, how are unrealized gains ancl losses reflected in shareholders’ equity? A They are not recognized. B ‘They flow through retained earnings. © ‘They are a component of accumulated other comprehensive income. The non-controlling (minority) interest in consolidated subsidiaries is presented ‘on the balance sheet: ‘A asa long-term liability B_ separately, but as a part of shareholders’ equity. © asa mezzanine item between liabilities and sharcholders’ equity. The item “retained earnings ‘a component of: A assets. B liabilities, © sharcholders’ equity: When a company buys shares of its own stock to be held in treasury, it records reduction in: A both assets and liabilities B_ both assets and shareholders’ equity. © assets and an increase in shareholders’ equity. 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? A An increase or decrease in sales B An increase or decrease in financial leverage. © A more efficient oF less efficient use of assets. An investor concerned whether a company can meet its near-term obligations is most likely to calculate the:Practice Problems » 2B A current ratio, B_ return on total capital. © financial leverage ratio. “The most stringent test of a company’s liquidity is its: A cash ratio, B_ quick ratio, © current ratio, An investor worried about a company’s long-term solvency would most likely ‘examine its: AL current ratio, B_ return on equity, © debt-to-equity ratio. Using the information presented in Exhibit 4, the quick ratio for SAP Group at 31 December 2009 is closest to: A 101 B 144. © 158, Using the information presented in Exhibit 12, the financial leverage ratio for SAP Group at 31 December 2089 is clasest to: A 008, B oss. 158 261