Exams-sep12

1) A balance sheet provides detailed information about a company’s assets, liabilities and shareholders’ equity.

2) Assets are things that a company owns that have value. This typically means they can either be sold or used by the company to make products or provide services that can be sold.

3) Liabilities are amounts of money that a company owes to others.

4) Shareholders’ equity is sometimes called capital or net worth. It’s the money that would be left if a company sold all of its assets and paid off all of its liabilities.

A company’s balance sheet is set up like the basic accounting equation shown above. On the left side of the balance sheet, companies list their 5) assets. On the right side, they list their 6) liabilities and 7)shareholders’ equity. Sometimes balance sheets show assets at the top, followed by liabilities, with shareholders’ equity at the bottom. 8) Assets are generally listed based on how quickly they will be converted into cash. 9) Current assets are things a company expects to convert to cash within one year.


A good example is inventory. Most companies expect to sell their inventory for cash within one year. 10) Non-current assets are things a company does not expect to convert to cash within one year or that would take longer than one year to sell.

Liabilities are generally listed based on their due dates. Liabilities are said to be either 11) current or 12) long-term. 13) Current liabilities are obligations a company expects to pay off within the year.14) Long-term liabilities are obligations due more than one year away.


15) Shareholders’ equity is the amount owners invested in the company’s stock plus or minus the company’s earnings or losses since inception. Sometimes companies distribute earnings, instead of retaining them. These distributions are called 16) dividends.

An 17) income statement is a report that shows how much revenue a company earned over a specific time period (usually for a year or some portion of a year).

An income statement also shows the 18) costs and expenses associated with earning that revenue. The literal “bottom line” of the statement usually shows the company’s 19) net earnings or 20) losses. This tells you how much the company earned or lost over the period.

Compute for the following using the financial statement provided:

Return on Equity
Return on Sales
Return on Total Assets

Debt:Equity Ratio
Net Worth
Dividend Earnings/Share