Chapter 3 Understanding Financial Statements and Cash Flows

41) Which of the following accounts does NOT belong on the asset side of a balance sheet?

A) accounts receivable

B) accumulated depreciation

C) cash

D) accruals

42) Which of the following accounts belong in the liability section of a balance sheet?

A) interest expense

B) accumulated depreciation

C) accounts payable

D) preferred stock

43) Which of the following accounts does NOT belong in the liability section of a balance sheet?

A) accruals

B) short-term debt

C) additional paid-in capital

D) long-term debt

44) Which of the following accounts belongs in the equity section of a balance sheet?

A) retained earnings

B) cash

C) long-term debt

D) dividends

45) Which of the following accounts does NOT belong in the equity section of a balance sheet?

A) retained earnings

B) paid-in-surplus

C) long-term debt

D) preferred stock

46) Universal Financial, Inc. has total current assets of $1,200,000; long-term debt of $600,000; total current liabilities of $500,000; and long-term assets of $800,000. How much is the firm's net working capital?

A) $1,000,000

B) $900,000

C) $600,000

D) $700,000

47) Siskiyou Corp. has cash of $75,000; short-term notes payable of $100,000; accounts receivables of $275,000; accounts payable of $135,000: inventories of $350,000; and accrued expenses of $75,000. What is the firm's net working capital?

A) $390,000

B) $175,000

C) $700,000

D) $210,000

48) Prepare a balance sheet using the information given below. Make sure to identify current assets, net fixed assets, total assets, current liabilities, long-term debt, total equity, and total liabilities and equity.

Gross fixed assets	$40,000
Cash	$18,000
Other assets	$5,000
Accumulated depreciation	$30,000
Common stock	$43,000
Short-term notes payable	$12,000
Accounts payable	$35,000
Inventories	$122,000
Retained earnings	$100,000
Accounts receivable	$60,000
Long-term notes payable	$10,000
Long-term bonds payable	$15,000
Sales	$300,000
Cost of goods sold	$150,000
Depreciation expense	$3,000

Learning Objective 3

1) Generally accepted accounting principles (GAAP) require finance statements prepared on a cash basis because these statements are most useful for investors and managers.

2) A company with negative net income will also have negative operating cash flow.