Balance Sheet Quiz - Financial Principles
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Questions and Answers

What is the correct equation for the Balance Sheet identity?

  • Liabilities = Assets - Stockholders’ Equity
  • Stockholders’ Equity = Assets - Liabilities
  • Assets = Stockholders’ Equity + Revenue
  • Assets = Liabilities + Stockholders’ Equity (correct)

    • What was the total assets figure for Global Conglomerate Corporation in 2015?

  • $155.5 million
  • $22.2 million
  • $133.3 million
  • $177.7 million (correct)

    • What is the value of stockholders' equity for Global Conglomerate Corporation in 2015?

  • $133.3 million
  • $177.7 million
  • $22.2 million (correct)
  • $155.5 million

    • Which of the following is part of the Balance Sheet components?

    <p>Liabilities</p> Signup and view all the answers

    If total liabilities are $155.5 million and stockholders' equity is $22.2 million, what are total assets?

    <p>$177.7 million</p> Signup and view all the answers

    What is the primary purpose of a balance sheet?

    <p>To display the company's financial position at a specific point in time</p> Signup and view all the answers

    Which component is NOT included in the balance sheet?

    <p>Net Income</p> Signup and view all the answers

    What is meant by financial leverage?

    <p>The use of debt to acquire additional assets for greater returns</p> Signup and view all the answers

    Which of the following ratios helps assess a company’s ability to cover its interest payments?

    <p>Interest Coverage Ratio</p> Signup and view all the answers

    Which of the following statements about leverage limits is true?

    <p>High levels of leverage can lead to financial distress.</p> Signup and view all the answers

    What is the balance sheet identity equation?

    <p>Assets = Liabilities + Equity</p> Signup and view all the answers

    Which financial statement provides a summary of revenues and expenses?

    <p>Income Statement</p> Signup and view all the answers

    Which of the following is NOT an example of a leverage ratio?

    <p>Return on Equity</p> Signup and view all the answers

    What does the stockholders’ equity represent on the balance sheet?

    <p>The difference between the firm’s assets and liabilities</p> Signup and view all the answers

    Which of the following is included in the assets section of a balance sheet?

    <p>Inventory</p> Signup and view all the answers

    What equation represents the Balance Sheet Identity?

    <p>Assets = Liabilities + Stockholders’ Equity</p> Signup and view all the answers

    Which of the following would be listed under liabilities on a balance sheet?

    <p>Accounts Payable</p> Signup and view all the answers

    How is stockholders' equity calculated?

    <p>Total Assets - Total Liabilities</p> Signup and view all the answers

    Which statement is true regarding the components of the balance sheet?

    <p>Assets, liabilities, and stockholders' equity are all essential parts of the balance sheet</p> Signup and view all the answers

    What type of information does the liabilities section of a balance sheet contain?

    <p>Obligations the firm has to pay its creditors</p> Signup and view all the answers

    Which of the following best defines the term 'assets' in the context of a balance sheet?

    <p>Resources owned by the company that have economic value</p> Signup and view all the answers

    What captures the value of brand names, trademarks, and patents on the balance sheet?

    <p>Intangible assets</p> Signup and view all the answers

    What occurs when the value of intangible assets declines over time?

    <p>Amortization or impairment charge</p> Signup and view all the answers

    Which of the following is NOT considered an intangible asset?

    <p>Physical inventory</p> Signup and view all the answers

    Which type of assets are included under 'other long-term assets' on a balance sheet?

    <p>Start-up costs</p> Signup and view all the answers

    What is an example of a long-term liability?

    <p>Bonds payable</p> Signup and view all the answers

    What encapsulates the concept of the total assets on a balance sheet?

    <p>The sum of all the firm's assets</p> Signup and view all the answers

    How are liabilities classified on the balance sheet?

    <p>Short-term and long-term liabilities</p> Signup and view all the answers

    Which of the following is true about amortization?

    <p>It reduces the value of intangible assets over time.</p> Signup and view all the answers

    What does the statement of cash flows primarily help investors assess?

    <p>The cash generated and allocated by the firm</p> Signup and view all the answers

    How many sections are there in the statement of cash flows?

    <p>Three sections</p> Signup and view all the answers

    What is included in the operating activities section of the statement of cash flows?

    <p>Expenses paid for current operations</p> Signup and view all the answers

    Which of the following is an example of financing activities in the statement of cash flows?

    <p>Issuing bonds</p> Signup and view all the answers

    What is the primary importance of the statement of cash flows for investors?

    <p>It displays the firm's cash management</p> Signup and view all the answers

    Which activity would be found in the investment activities section of the statement of cash flows?

    <p>Purchasing new equipment</p> Signup and view all the answers

    What role does the balance sheet play in the statement of cash flows?

    <p>It supplies data on assets, liabilities, and equity</p> Signup and view all the answers

    Which of the following statements about the statement of cash flows is true?

    <p>It combines cash flows from operating, investing, and financing activities</p> Signup and view all the answers

    How would an additional $1 million depreciation expense affect Global’s pretax income?

    <p>Pretax income would decrease by $1.7 million</p> Signup and view all the answers

    What is the tax impact of a $1 million depreciation expense given a tax rate of 26%?

    <p>Tax savings of $260,000</p> Signup and view all the answers

    What effect does depreciation have on operating income for Global?

    <p>Operating income decreases by $1 million</p> Signup and view all the answers

    How would the additional $1 million depreciation expense affect Global's cash balance at the end of the year?

    <p>Cash balance remains unchanged</p> Signup and view all the answers

    Which financial metric is directly impacted by an increase in depreciation expense?

    <p>Net income</p> Signup and view all the answers

    What would be the total reduction in Global's earnings before tax as a result of an additional $1 million depreciation expense?

    <p>$1 million</p> Signup and view all the answers

    If Global's pretax income was originally $2.7 million, what would it be after the $1 million depreciation?

    <p>$1.7 million</p> Signup and view all the answers

    How does including depreciation in the calculation impact overall financial analysis?

    <p>It provides a more accurate reflection of operational costs</p> Signup and view all the answers

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