FINC 300 Quiz: Ch2 FINC300

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rubygoose18

5 Oct 2017

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Balance sheet: a snapshot of the firm"s assets and liabilities at a given point in time. Assets listed in order of decreasing liquidity (ease of conversion to cash, w/o significant loss of value). Balance sheet identity assets= liabilities + stockholder"s equity. Net working capital= current assets current liabilities; positive when the cash received over the next 12 months exceeds cash paid out. Usually positive for a healthy firm (but not always some industries use negative working capital as a source of financing) Liquidity: the ability to convert cash quickly w/o a significant loss in value. Liquid firms are less likely to experience fncl distress. Trade-off to find balance b/w liquid and illiquid assets. Market value vs. book value balance sheet provides the book value of the assets, liabilities and equity; market value is the price at which the assets, liabilities or equity can actually be bought or sold.

Related Questions

Here is your first question:

Explain what current assets and fixed assets are and give as many examples as you can for each. What is the difference between tangible and intangible assets?

Liabilities and owner's equity are listed on the right-hand side respectively. Liabilities are also classified as current liabilities and long-term liabilities.

Here is your second question:

Explain what current liabilities differ from long-term liabilities and give as many examples as you can for each.

Owner's equity (also known as shareholders' equity, common equity) is the difference between total value of assets and total value of liabilities. That is, if you were to use your assets to pay off the debts, whatever is left over (the residual) would belong to shareholders. That is why they are known as residual claimants. Hence we have the identity;

Assets = Liabilities + Shareholders' equity

Net working capital is simply equal to current assets minus current liabilities. When net working capital is positive, it means cash that will be available over the next 12 months exceeds what must be paid. It is important for a healthy firm to have positive net working capital.

Here is your third question:

A firm has current assets of $100, net fixed assets of $500, short-term debt of $70 and long-term debt of $200. What is shareholders' equity. Construct a balance sheet

for this company. Is net working capital positive or negative? If so by how much? (Hint: You may utilize Example 2.1 on page 24 of the textbook).

P5-3 Preparing a Balance Sheet and Analyzing Some of Its Parts LO5-3

Exquisite Jewelers is developing its annual financial statements for 2015. The following amounts were correct at December 31, 2015:

cash, $58,000; accounts receivable, $71,000; merchandise inventory, $154,000; prepaid insurance, $1,500;
investment in stock of Z corporation (long-term), $36,000; store equipment, $67,000; used store equipment held for disposal, $9,000;
accumulated depreciation, store equipment, $19,000; accounts payable, $52,500; long-term note payable, $42,000; income taxes payable, $9,000;
retained earnings, $164,000; and common stock, 100,000 shares outstanding, par value $1.00 per share (originally sold and issued at $1.10 per share).

Required:
1	Based on these data, prepare a December 31, 2015, balance sheet. (Amounts to be deducted should be indicated by a minus sign.)
	Possible input areas are shaded.

	EXQUISITE JEWELERS
	Balance Sheet
	December 31, 2015
	Assets
	Current assets:





	Total current assets		$ -
	Long-term investments:


	Fixed assets:



	Total fixed assets		-
	Other assets:


	Total assets		$ 377,500
	Liabilities
	Current liabilities:



	Total current liabilities		$ -
	Long-term liabilities:


	Total liabilities		-
	Stockholders' Equity
	Contributed capital:



	Total contributed capital	-


	Total stockholders' equity		-
	Total liabilities and stockholders' equity		$ -

Required:
2	What is the net book value of the store equipment?

	Net book value

taupedonkey505

Muffinâs Masonry, Inc.âs balance sheet lists net fixed assets as$26 million. The fixed assets could currently be sold for $43million. Muffinâs current balance sheet shows current liabilitiesof $11.5 million and net working capital of $10.5 million. If allthe current accounts were liquidated today, the company wouldreceive $7.85 million cash after paying the $11.5 million incurrent liabilities. What is the book value of Muffinâs Masonryâsassets today and the market value of these assets? (Enter youranswer in millions of dollars rounded to 2 decimal places.)

	BOOK VALUE	MARKET VALUE
	(in millions of dollars)
Current assets
Fixed assets
Total	$0.00	$0.00

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FINC 300 Quiz: Ch2 FINC300

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