ACG 2021 Chapter 2 Review Questions and Correct Answers
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Course
ACG 2021
Institution
ACG 2021
Classified balance sheet Groups similar assets and similar liabilities on their economic properties.
Examples of assets on a classified balance sheet In order of liquidity 1. Current assets >Cash, short term investments, accounts receivable, _______ receivable, Inventory, supplies, prepaid rent...
ACG 2021 Chapter 2 Review Questions
and Correct Answers
Classified balance sheet ✅Groups similar assets and similar liabilities on their
economic properties.
Examples of assets on a classified balance sheet ✅In order of liquidity
1. Current assets
>Cash, short term investments, accounts receivable, _______ receivable, Inventory,
supplies, prepaid rent/insurance.
2.Long term investments
>PPE not used in operations.
3. PPE
>Used in operations, buildings- accumulated depreciation, Equipment -accumulated
depreciation, land.
4. Intangible assets
>patent
>copyright
>trademark
>franchise
>goodwill
Examples of liabilities on a classified balance sheet ✅In order of liquidity
>Current liabilities, accounts payable, notes payable (less than one year).
>Long term liabilities, mortgage payable, bonds payable, notes payable (greater than
one year).
Examples of Stockholders Equity on a classified balance sheet ✅Common stock and
Retained earnings (NI-dividends).
Current assets ✅Assets that are expected to be converted into cash or used within
one year (or within one operating cycle).
Listed in order of liquidity.
Cash> short term investments> accounts receivable> interest receivable> notes
receivable> inventories> supplies> prepaid expenses.
liquidity ✅how quickly an asset can be converted into cash.
, Inventory ✅what we sell
Supplies ✅What we use to clean, write, etc.
Prepaid expenses ✅are assets because we are owed rent/insurance
Operating Cycle ✅Total amount of time it takes to purchase inventory, sell it to
customers, and collect the cash from those customers (assume shorter than one year).
Long term investments ✅investments in stocks and bonds of other companies that are
held for more than one year and/or investments in long term assets such as land or
buildings (PPE) that are not used in operating activities.
Example:
a company purchased a building that has been sitting idle for 5 years, this falls under
long term investments.
Property, Plant, and Equiptment ✅assets such as land, buildings, machines, and
equipment (that have long useful lives) that are used in operating activities.
Accumulated depreciation factors into this besides land.
Intangible assets ✅Assets that essentially have no physical substance, but are very
valuable. The value comes from the rights that the asset provides.
Examples:
patents, copyrights, trademarks, franchises, and goodwill (name and reputation).
Working capital ✅Working Capital= Current assets- Current liabilities
Current ratio ✅(liquidity ratio)
Current ratio=
Current assets/Current liabilities
a higher number is better
Working capital and Current ratio ✅Measure the ability of the company to meet its
current debt obligations. They both measure the liquidity (how quickly we pay our short
term debts) of a company.
The larger the number, the more liquidity (which is better).
Debt to assets ratio ✅(solvency ratio)
>debt to assets ratio= total liabilities/total assets
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