Chapter 3 Understanding Financial Statements and Cash Flows

 21) A balance sheet reflects the current market value of a firm's assets and liabilities.

22) Net working capital is equal to gross working capital minus depreciation.

23) The balance sheet reflects the accounting equation: Assets = Liabilities + Owners' Equity.

24) Liquidity refers to the ability to quickly convert an asset into cash without lowering the selling price.

Please refer to Table 3-1 for the following questions.

Table 3-1

Jones Company

Financial Information

	December 2009	December 2010
Net Income	$2,000	$4,000
Accounts receivable	750	950
Accumulated depreciation	1,000	1,500
Common stock	4,500	5000
Paid-in capital	7,500	8500
Retained earnings	1,500	3,500
Accounts payable	750	750

25) Based on the information in Table 3-1, calculate the amount of dividends paid by Jones Company in 2010 (no assets were disposed of during the year, and there was no change in interest payable or taxes payable).

A) $2,000

B) $2,500

C) $3,500

D) $4,000

26) Based on the information in Table 3-1, assuming that no assets were disposed of during 2010, the amount of depreciation expense was

A) $375.

B) $500.

C) $2,500.

D) $3,500.

27) Based on the information in Table 3-1, assuming that no common stock was repurchased during the year, the firm issued how much new common stock during 2010?

A) $500

B) $1,000

C) $1,500

D) $2,000

28) The December 31, 2009 balance sheet shows net fixed assets of $150,000 and the December 31, 2010 balance sheet shows net fixed assets of $250,000. Depreciation expense for 2009 is $25,000 and depreciation expense for 2010 is $35,000. Based on this information, the cost of fixed assets purchased during 2010 is

A) $100,000.

B) $110,000.

C) $135,000.

D) $160,000.

29) All of the following would result in an increase in stockholders equity EXCEPT

A) the company sold common stock at par value.

B) the company sold common stock above par value.

C) the company purchased treasury stock.

D) the company had positive net income greater than dividends paid.

30) Wheeler Corporation had retained earnings as of 12/31/10 of $15 million. During 2011, Wheeler's net income was $7 million. The retained earnings balance at the end of 2011 was equal to $20 million. Therefore

A) Wheeler paid a dividend in 2010 of $5 million.

B) Wheeler paid a dividend in 2010 of $2 million.

C) Wheeler sold common stock during 2010 for $5 million.

D) Wheeler purchased treasury stock in 2010 for $2 million.