HEALTH CARE FINANCE

| March 14, 2016

. Which of the following statements about the organization of the balance sheet is most correct?

a. The balance sheet has upper and lower (or left and right) sections.

b. Assets are divided into current and long-term categories.

c. Assets are divided into equity and non-equity categories.

d. Both a. and b. above are correct.

e. Both a. and c. above are correct.

Answer: _____

2. True or False: Like the income statement, the balance sheet reports the assets and liabilities of an organization over some period of time.

a. True

b. False

Answer: _____

3. Which of the following equations best describes the accounting identity?

a. Long-term assets = Short-term assets + Equity.

b. Assets = Liabilities + Equity.

c. Total claims = Liabilities + Equity.

d. Short-term assets = Cash + Receivables.

e. Long-term liabilities = Notes + Bonds.

Answer: _____

4. Which of the following statements about the balance sheet is most correct?

a. The lower (right-hand) section reports cash and other assets.

b. The balance sheet reports on a business’s operations.

c. The asset side of the balance sheet is listed in decreasing order of maturity (i.e., longer maturity assets are listed first).

d. The upper (left-hand) section reports liabilities and equity.

e. None of the above statements are correct.

Answer: _____

5. Assume that the value of diagnostic equipment suddenly falls because of technological obsolescence. How is the balance sheet adjusted to preserve the accounting identity?

a. Short-term liabilities are reduced.

b. Long-term liabilities are reduced.

c. Equity is reduced.

d. Inventories are reduced.

e. Cash is reduced.

Answer: _____

6. Which of the following statements concerning accumulated depreciation is most correct?

a. Accumulated depreciation is an income statement item.

b. There is no relationship between depreciation expense on the income statement and accumulated depreciation on the balance sheet.

c. Net fixed assets is equal to gross fixed assets plus accumulated depreciation.

d. Accumulated depreciation appears on the balance sheet under the category “Other Assets.”

e. None of the above statements is correct.

Answer: _____

7. Which of the following statements concerning the statement of cash flows is most correct?

a. Like the balance sheet, the statement of cash flows is as of a single point in time.

b. The statement of cash flows uses information from both the income statement and the balance sheet.

c. The statement of cash flows has five major sections.

d. The most important line on the statement of cash flows is the “bottom line,” the net increase (decrease) in cash.

e. None of the above statements is correct.

Answer: _____

8. Assume that a business’s balance sheet reports total assets of $500,000 and total liabilities of $300,000. Now assume that $20,000 of net fixed assets (net plant and equipment) are written off due to technological obsolescence. All else the same, what is the total equity of the business after the write-off?

a. $200,000

b. $190,000

c. $180,000

d. $170,000

e. There is insufficient information given to answer this question.

Answer: _____

9. Consider the following balance sheet:

Cash $ 70,000Accounts payable $ 30,000

Accounts receivable 30,000Long-term debt 20,000

Inventories 50,000Common stock 200,000

Net fixed assets 350,000Retained earnings 250,000

Total assets $500,000Total claims $500,000

Which of the following statements is most correct?

a. The business is not-for-profit.

b. The business, in the aggregate over time, has been profitable.

c. The business is probably using too much debt financing.

d. The business has $450,000 in its equity accounts (common stock and retained earnings); thus, it has this much money available to spend on new facilities.

e. The business has a short-term bank loan outstanding.

Answer: _____

10. Consider the following balance sheet:

Cash $ 70,000Accounts payable $ 30,000

Accounts receivable 30,000Long-term debt 20,000

Inventories 50,000Common stock 200,000

Net fixed assets 350,000Retained earnings 250,000

Total assets $500,000Total claims $500,000

Assume that the business uses $10,000 of its cash to pay for supplies that were ordered on credit terms and have already been received and booked (recorded on the balance sheet). Which of the below statements reflects the resulting balance sheet change?

a. There is a change to the left-hand side only.

b. There is a change to the right-hand side only.

c. The cash account decreases by $10,000 and the retained earnings account decreases by $10,000.

d. The cash account decreases by $10,000 and the accounts payable account decreases by $10,000.

e. The cash account decreases by $10,000 and the supplies account increases by $10,000.

Answer: _____

11. Consider the following balance sheet:

Cash $ 70,000Accounts payable $ 30,000

Accounts receivable 30,000Long-term debt 20,000

Inventories 50,000Common stock 200,000

Net fixed assets 350,000Retained earnings 250,000

Total assets $500,000Total claims $500,000

Assume that the business uses $30,000 of its cash to pay salaries. Which of the below statements reflects the resulting balance sheet change?

a. There is a change to the left-hand side only.

b. There is a change to the right-hand side only.

c. The cash account decreases by $30,000 and the retained earnings account is reduced by $30,000.

d. The cash account decreases by $30,000 and the long-term debt account is reduced by $30,000.

e. The company does not have the ability to pay $30,000 in salaries.

Answer: _____

12. True or False: Fund accounting is used by investor-owned (for-profit) businesses to differentiate between operating funds and retirement funds.

a. True

b. False

Answer: _____

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