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Accoutning:Definition of assets,liabilities etc.

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Multiple Choice:

1. The best definition of assets is the
a. cash owned by the company.
b. collections of resources belonging to the company and the claims on these resources.
c. Owners' investment in the business.
d. resources belonging to a company have future benefit to the company.

2. Liabilities
a. are future economic benefits.
b. are debts and obligations.
c. possess service potential.
d. are things of value owned by a business.

3. Notes to the financial statements
a. are optional.
b. help clarify information presented in the financial statements.
c. are generally brief and few in number.
d. need not be read in detail if an unqualified opinion accompanies the financial statements.

Problems

4. Selected data taken from the 2006 financial statements of trading card company Bottoms Company, Inc. are as follows (in millions).

Net sales $295.9
Current liabilities, February 28, 2005 39.5
Current liabilities, February 28, 2006 47.5
Net cash provided by operating activities 23.0
Total liabilities, February 28, 2005 64.2
Total liabilities, February 28, 2006 71.2
Capital expenditures 2.6
Cash dividends 6.5

Instructions
Compute these ratios at February 20, 2006:
(a) Current cash debt coverage ratio
(b) Cash debt coverage ratio
(c) Free cash flow

Provide a brief interpretation of your results.

5. The comparative balance sheet of Stuart Company appears below:

STUART COMPANY
Comparative Balance Sheet
December 31,

Assets 2007 2006
Current assets $ 340 $280
Plant assets 675 520
Total assets $1,015 $800

Liabilities and stockholders' equity
Current liabilities $ 180 $120
Long-term debt 250 160
Common stock 325 320
Retained earnings 260 200
Total liabilities and stockholders' equity $1,015 $800

Instructions
(a) Using horizontal analysis, show the percentage change for each balance sheet item using 2006 as a base year.
(b) Using vertical analysis, prepare a common size comparative balance sheet.

6. Your friend, Mark, has opened a movie theater. Mark states that he does not have time to develop and implement a system of internal controls.

a. Provide Mark with the objectives of a system of internal control.

b. Explain to Mark, in detail, why he should develop a system of internal control.

7. A large stock dividend and stock split can frequently have the same effect on the market price of a corporation's stock. Explain how stock dividends and stock splits affect the market price of a corporation's stock.

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Solution Summary

The problem set deal with accounting questions:horizontal analysis,vertical analysis,definition of assets and liabilities etc.

Solution provided by:
Chidi Ngene, M. Sc.
Education
  • B. Sc., University of Nigeria
  • M. Sc., London South Bank University
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