LECTURE QUIZ
FINANCE: The Balance Sheet and Market Indexes
Directions: Use your handouts and notes from Business Class.
1. What is the basic Balance Sheet Equation?
2. What do the three basic elements of the Balance Sheet tell you? (see the handout)
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Assets: |
Liabilities:
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Equity:
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3. What are the basic components in the assets, liabilities, and equity accounts?
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Assets |
Liabilities |
Owners’ Equity |
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4. Which of the following does not belong in the corporation’s assets account?
a- cash
b- other businesses’ securities (stocks and bonds) that are marketable
c- account receivables
d- merchandise inventory
e- prepaid expenses
f- land
g- building
h- equipment
i- Accounts payable
j- Common stock, retained earnings
k- i and j
5. T / F – Liabilities and Equity in the Balance Sheet show the sources of the capital that the corporation has raised.
6. T / F: Assets show how the corporation used the capital to buy what it owns.
7. T / F – Equity is the source of capital that the corporation owns, including the common stock, and retained earnings.
8. T / F – Liabilities show the source of capital that the corporation has raised by borrowing (debt).
9. The corporation borrows money from
a- banks (through bank loans)
b- other businesses (through deferred payments)
c- private investors (through issuing bonds)
d- all of the above
10.
T / F- The Cash item on
the Balance Sheet shows the dollar value that the corporation
keeps in the bank accounts
and in the cash registers.
11.
The amount of money that customers owe to the
corporation is recorded in the
ACCOUNTS RECEIVABLE / ACCOUNTS PAYABLE. (Circle one.)
12.
The amount of money that the corporation owes to its
suppliers is recorded in the
ACCOUNTS RECEIVABLE / ACCOUNTS PAYABLE. (Circle one.)
13. Three forms of inventory are:
a. raw materials
b.
c.
14. T / F - Forms of assets kept in inventory vary from business to business depending on the type of business production.
15.
_______________________ show the total dollar value of all assets that the
corporation expects to sell or receive
and turn into cash within one year of
operation.
16.
________________________ show the total dollar value that the corporation owes;
they have to be paid within
one year of operation.
17. FIXED ASSETS / CURRENT ASSETS are not going to turn into cash within one year of operation.
18. T
/ F – Notes payable to the bank (loans) or the value of bonds and
bond interests
are the corporation’s
short-term liabilities (or
debt).
19.
(EXTRA
CREDIT) A legal pledge of property to a creditor (a lender) as
a security
for the payment of a loan
or other debt is a
_________________________
20. If
you know the sales value of a house and you know the amount of the loan the
owner
has taken out to pay for
it (= mortgage), how can you calculate the
owner’s equity—i.e. What is the equation for owner’s equity?
21. T / F – Common stock shows all the money that stockholders invested in the corporation by selling (or issuing) stocks.
22.
The amount of net income that the corporation decides not to pay
out as dividends
but put back into the
business is ___________________________
23. Why does the Balance Sheet have the word “balance” in the title?
24. T
/ F- The balance sheet is sometimes called statement of
financial position
because it shows the firm’s
financial condition at a particular point in time
(snapshot).
25. T
/ F – Funding for a corporation comes from borrowings (from
bank loans, bond issues,
or from other businesses)
and owners’ investment (stocks issue or
retained earnings).
26. Owners contribute to a business through
a- newly issued stocks (common stocks)
b- Reinvested earnings (= retained earnings)
c- a & b
27. Do
the transactions below (left side) bring about an increase or decrease
in the following
accounts on financial statements?
Use (+) for an
increase, and (–) for a decrease.
TRANSACTION
INCREASE/DECREASE in specific account
EFFECT: + or -
EX: Pay the workers’ wages
Cash
Liability/Accounts Payable
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a- Purchase of an asset (increase in something owned)
Assets
Cash
b- Ship finished products to a customer
Accounts Receivable
Inventory
c- Borrow money from the bank (loan)
Cash
Note Payable/Liability
d- Sale of Common Stock
Common Stock
Cash
e- Increase in sales
Sales
Cash
Net income
Inventory
f- Increase in Expenses associated with Sales
Expenses
Cash
Net Income
g- Increase in Net Income
Retained Earnings
h- Pay dividends
Retained Earnings
28. T / F A market index is summary of price trends in a specific industry and/or the stock market as a whole.
29. T / F Indexes allow investors to track the performance of samples or a segment of the whole market.
30. The examples of market indexes given in the lecture are______________ and ________________.
31. Which of the above indexes reflects a more general performance of the whole market?
32. T / F The DOW includes (or tracks) the 50 largest industrial companies in the U.S.
33. T / F General Electric is the only company that remains of the original members of the Dow Jones Industrial Index.
34. T / F When we create an index to compare our company’s performance to that of the S&P500, we need to start both out at 100.
35. T / F The purpose of an index is to indicate the percentage change from a previous date.
36. T / F Any company announcement (press release) will affect the stock price of the company.
37. Stock prices will be most affected by company announcements of
a- Earnings
b- Acquisitions
c- New products
d- All of the above
38. T / F
The purpose of using an index to compare the company stock price and the S&P500
before and after a company
announcement is to
see whether the market or the news event is driving the change in stock price.