Test 2: Financial Statements

Question 1

classified balance sheet

Answer 1

presents the assets and liabilities of a business in

separate subgroups

Question 2

Current assets

Answer 2

consist of cash and other assets that will be converted into cash or used up within the normal operating cycle of a business or one year, whichever is longer.

Question 3

Normal operating cycle of a business

Answer 3

is the average period of time between the use of
cash to deliver a service or to buy goods for resale and the subsequent collection of cash from customers who purchase those services or products

Question 4

Long-term assets

Answer 4

assets that the company does not expect to convert into cash within the next year or use up during the course of the normal operating cycle, whichever is longer

Question 5

Property, plant, and equipment

Answer 5

consists of the land, buildings, equipment, vehicles,

furniture, and fixtures that a company uses in its day-to-day operations

Question 6

Intangible assets

Answer 6

consist of brand names, copyrights, patents, and trademarks that a company acquires

Question 7

Current liabilities

Answer 7

consist of liabilities that must be settled within the normal operating cycle or one year, whichever is longer.

Question 8

Long-term liabilities

Answer 8

consist of debt obligations not due to be settled within the normal operating cycle or one year.

Question 9

What falls under Current Asset?

Answer 9

Cash & Cash Equvils, Accounts Rec, Inventory, Other Current Assets

Question 10

What falls under long term assets?

Answer 10

Plant Property Equipment, Intangible Assets, Other Long Term assets

Question 11

What falls under Current Liabilities

Answer 11

Accounts Payable, accured Expense Payable, Short Term Notes Payable, other current liabilities

Question 12

What falls under long term liabilities

Answer 12

Long term notes payable, other long term liabilities

Question 13

Gross profit, or gross profit on sales

Answer 13

is defined as the difference between net sales and cost of goods sold and reveals the amount of sales revenue remaining after subtracting the cost of products sold

Question 14

Net Sales

Answer 14

Are total sales less an amount to record any sales returns and allowances and sales discounts
Total Sales-Sales returns, allowance, discounts

Question 15

Sales returns and allowances

Answer 15

represent the amount given to the customer for the

return of merchandise or an amount given in lieu of a return

Question 16

Sales discounts

Answer 16

represent an amount allowed to the buyer for early payment

Question 17

Ratio analysis

Answer 17

expresses the relation of one relevant accounting number

to another relevant accounting number through the process of division

Question 18

return on assets (ROA)

Answer 18

Net Income (divided by) Total Assets

Question 19

Trend analysis

Answer 19

is a process in which we compare a company’s results, or the results of a ratio, over time.

Question 20

Benchmarking analysis

Answer 20

where the analyst compares a company’s performance, or a ratio, to that of its competitors, or to an industry average

Question 21

The current ratio

Answer 21

defined as current assets divided by current liabilities

Helps determine how liquid a company is

Question 22

Solvency

Answer 22

refers to a company’s ability to pay its long-term financial obligations.

Question 23

debt-to-total-assets ratio

Answer 23

calculated as total liabilities divided by total assets, provides a measure of this risk and is one ratio used to assess a company’s solvency

Question 24

return on sales (ROS) ratio

Answer 24

calculated as net income divided by net sales

net income/net sales

Question 25

Contributed capital

Answer 25

is a measure of the capital contributed the stockholders of a company when they purchase ownership shares in the company

Question 26

Earned capital

Answer 26

is a measure of the capital that is earned by the company, reinvested in the business, and not distributed to its stockholders—that is, its retained earnings

Question 27

Retained Earnings is calculated as

Answer 27

calculated as retained earnings at the start of the period, plus net income for the period, less any dividends paid during the period.

Question 28

Free Cash Flow

Answer 28

Free cash flow = Cash flow from operations - Capital expenditures

Question 29

When is a balance sheet in balance?

Answer 29

Total assets must equal total liabilities plus stockholders’ equity

Question 30

Return on Sales ratio gives us an understanding of?

Answer 30

1. Acompany’s net income per dollar of sales.
2. A measure of a company’s financial performance
3. A companies operating efficiency