Multiple Choice questions on basics of balance sheet and income statement.

1. Which of the following equations is not true?

a. Assets = Liabilities - Stockholders\' Equity

b. Assets = Liabilities + Stockholders\' Equity

c. Assets - Stockholders\' Equity = Liabilities

d. Assets - Liabilities = Stockholders\' Equity

e. Assets - Liabilities - Stockholders\' Equity = Zero

2. An incomplete balance sheet for Software Square Company is presented below:        

                                   Software Square Company

                                        Balance Sheet

                                       March 31, 2002

                       Assets               Liabilities and Stockholders\' Equity

            Cash            $   ?        Notes payable               $45,000

            Accounts receivable 10,000

            Building            50,000

                                      Stockholders\' equity

                                         Capital stock               $   ?

                                         Retained earnings            11,000

If the firm issued capital stock for cash in the amount of $70,000, then the cash on hand must be:           

a. $65,000

b. $66,000

c. $70,000

d. $115,000

e. Cannot be determined from the above information.

3. Kenny Tieg Corporation had total assets of $200,000 and stockholders\' equity of $104,000 at the beginning of the year. During the year, assets increased by $26,000 and liabilities decreased by $41,000. Stockholders\' equity at the year\'s end totaled:

a. $185,000

b. $171,000

c. $169,000

d. $89,000

e. $67,000

4. The B-Bop Corporation began the current year with assets of $250,000 and liabilities of $170,000. During the year, stockholders\' equity increased by $50,000 and liabilities decreased by $20,000. Total assets

a. increased by $50,000.

b. increased by $30,000.

c. increased by $70,000.

d. decreased by $30,000.

e. decreased by $70,000.

5. The following transactions were extracted from the accounting records of Tyvall Corporation:

                            Borrowed $150,000 from a bank.

                            Collected $30,000 from a sale made in March.

                            Sold $35,000 in cash and $65,000 on account.

                           Tyvall\'s revenues for the month of April were:                   

a. $280,000

b. $215,000

c. $100,000

d. $130,000

e. $245,000

6. Comparing one firm\'s liquidity to another is best accomplished by comparing             

a. working capital.

b. current ratio.

c. debt-to-asset ratio.

d. debt-to-equity ratio.

e. gross profit.

7. A firm\'s debt ratio is 60%. This means that    

a. 40% of the assets were provided by shareholders.

b. 60% of the assets were provided by shareholders.

c. The firm has legal claims against only 40% of the assets.

d. The firm has legal claims against only 60% of the assets.

e. 60% of every sales dollar must be paid to the creditors.

8. Compute operating expenses using the following information:

                        Gross profit was $80,000

                        Income tax rate was 20%

                        Profit margin ratio was 5%

                        Gross profit ratio was 40%

a. $30,000

b. $70,000

c. $67,500

d. $20,000

e. $28,000

9. Possible asset categories on a balance sheet include all of the following except

a. property, plant, and equipment.

b. intangible assets.

c. retained earnings.

d. current assets.

e. long-term investments.

10. Accumulated depreciation would be shown under which of the following categories on a balance sheet?

a. current assets

b. current liabilities

c. long-term liabilities

d. property, plant, and equipment

e. stockholders\' equity