Chapter 02 Student Name _________________________ Student ID ____________

1. The financial statement showing a firms accounting value on a particular date is the:
a. income statement.
b. balance sheet.
c. statement of cash flows.
d. tax reconciliation statement.
e. shareholders equity sheet.
2. A(n) ____ asset is one which can be quickly converted into cash without significant loss
in value.
a. current
b. fixed
c. intangible
d. liquid
e. long-term
3. Financial leverage refers to the:
a. amount of debt used in a firms capital structure.
b. ratio of retained earnings to shareholders equity.
c. ratio of paid-in surplus to shareholders equity.
d. ratio of cost-of-goods-sold to total sales.
e. amount of receivables present in the firms asset structure.
4. Which of the following are included in current assets?
I. equipment
II. inventory
III. accounts payable
IV. cash
a. II and IV only
b. I and III only
c. I, II, and IV only
d. III and IV only
e. II, III, and IV only
5. Which one of the following statements concerning net working capital is correct?
a. Net working capital is negative when current assets exceed current liabilities.
b. Net working capital includes cash, accounts receivables, fixed assets, and accounts
payable.
c. Inventory is a part of net working capital.
d. The change in net working capital is equal to the beginning net working capital
minus the ending net working capital.
e. Net working capital includes accounts from the income statement.
6. A firm has $300 in inventory, $600 in fixed assets, $200 in accounts receivables, $100 in
accounts payable, and $50 in cash. What is the amount of the current assets?
a. $500
b. $550
c. $600
d. $1,150
 e. $1,200d
7. A firm has net working capital of $350. Long-term debt is $600, total assets are $950 and
fixed assets are $400. What is the amount of the total liabilities?
a. $200
b. $400
c. $600
d. $800
e. $1,200
8. A firm has common stock of $100, paid-in surplus of $300, total liabilities of $400,
current assets of $400, and fixed assets of $600. What is the amount of the
shareholders equity?
a. $200
b. $400
c. $600
d. $800
e. $1,000
9. Shareholders equity in a firm is $500. The firm owes a total of $400 of which 75 percent
is payable within the next year. The firm has net fixed assets of $600. What is the
amount of the net working capital?
a. -$200
b. -$100
c. $0
d. $100
e. $200
10. Given the tax rates as shown, what is the average tax rate for a firm with taxable income
of $126,500?
Taxable Income Tax Rate
$ 0- 50,000 15%
50,001 - 75,000 25%
75,001 - 100,000 34%
100,001 - 335,000 39%

a. 21.38 percent
b. 23.88 percent
c. 25.76 percent
d. 34.64 percent
e. 39.00 percent
Chapter 02 Answers

1. b
2. d
3. a
4. a
5. c
6. b
7. c
8. c
9. c
10. c