BMAL 590 PRACTICE EXAMINATION 2026
QUESTIONS WITH ANSWERS
GUARANTEED TO PASS.
⫸ A firm's balance sheet. Answer: presents a "snapshot" view of the
company's financial position at a specific moment in time.
By definition, a firm's assets must equal the combined value of its
liabilities and stockholders' equity.
The basic balance sheet equation is Assets = Liabilities + Stockholders'
Equity. Thus, creditors and equity investors finance all of a firm's assets.
The balance sheet consist of three sections that list a firm's assets and
liabilities as well as the claims of the stockholders.
ssets and liabilities appear in descending order of liquidity,
⫸ Liquidity. Answer: The length of time it takes to convert accounts
into cash during the normal course of business. The most liquid asset
(cash) appears first, and the least liquid (fixed assets) comes last.
,Current assets are those that are easy to sell and turn into cash, while
fixed assets are physical assets like buildings and equipment.
⫸ Assets. Answer: include everything that can be used to benefit the
business or give the company the right to receive benefits
⫸ Current Liabilities. Answer: those that must be paid within one year
and include accounts payable, notes payable, and accrued expenses
⫸ Long-term liabilities. Answer: due after more than a year and include
deferred taxes and long-term debt.
⫸ stockholders' equity. Answer: The last entry on the balance sheet,
stockholders' equity is the owners' residual share of the business,
including their original investment plus any money the firm has earned
and retained since its inception.
Stockholders' equity includes preferred stock, common stock, paid-in-
capital in excess of par, and retained earnings. However, the net worth of
the firm includes only the common stock, paid-in-capital in excess of
par, and retained earning.
⫸ Balance Sheet Assets. Answer: -organized in order of liquidity:
1. Current Assets
,-includes all cash and items expected to be converted into cash in next
12 months
A. Cash and Equivalents - money market
B. Accounts Receivable - amounts due from customers
C. Inventory - cost of raw materials
D. Prepaid Expenses - rents, taxes, prepaid advertising
2. Fixed Assets
A. Property Plant and Equipment
-factories
3. Other Assets
A. Intangible Assets
-brand names, trademarks, formulas, etc
⫸ Cash and cash equivalents. Answer: assets such as checking account
balances at commercial banks that can be used directly as means of
payment.
⫸ Marketable securities. Answer: represent liquid short-term
investments, which financial analysts view as a form of "near cash."
They include Treasury notes, commercial paper, and others.
, ⫸ Accounts receivable. Answer: represent the amount customers owe
the firm from sales made on credit.
⫸ Inventories. Answer: include raw materials, work in process (partially
finished goods), and finished goods held by the firm.
⫸ Intangible assets. Answer: items such as patents, trademarks,
copyrights, or mineral rights entitling the company to extract oil and gas
on specific properties.
⫸ Gross property, plant, and equipment (PP&E). Answer: the original
cost of all real property, structures, and long-lived equipment owned by
the firm.
⫸ Net property, plant, and equipment. Answer: calculated as Gross
PP&E less accumulated depreciation - the cumulative expense recorded
for the depreciation of fixed assets since their purchase; this reflects a
decline in the asset's economic value over time. The one fixed asset that
is not depreciated is land because it seldom declines in value.
⫸ "book value". Answer: Net PP&E on the balance sheet is the total
"book value" of the assets, which is the original cost of the assets less
accumulated depreciation to date. Depreciation is taken according to
standardized formulas and does not reflect the reduction in actual value
of the assets which can vary for many reasons.
QUESTIONS WITH ANSWERS
GUARANTEED TO PASS.
⫸ A firm's balance sheet. Answer: presents a "snapshot" view of the
company's financial position at a specific moment in time.
By definition, a firm's assets must equal the combined value of its
liabilities and stockholders' equity.
The basic balance sheet equation is Assets = Liabilities + Stockholders'
Equity. Thus, creditors and equity investors finance all of a firm's assets.
The balance sheet consist of three sections that list a firm's assets and
liabilities as well as the claims of the stockholders.
ssets and liabilities appear in descending order of liquidity,
⫸ Liquidity. Answer: The length of time it takes to convert accounts
into cash during the normal course of business. The most liquid asset
(cash) appears first, and the least liquid (fixed assets) comes last.
,Current assets are those that are easy to sell and turn into cash, while
fixed assets are physical assets like buildings and equipment.
⫸ Assets. Answer: include everything that can be used to benefit the
business or give the company the right to receive benefits
⫸ Current Liabilities. Answer: those that must be paid within one year
and include accounts payable, notes payable, and accrued expenses
⫸ Long-term liabilities. Answer: due after more than a year and include
deferred taxes and long-term debt.
⫸ stockholders' equity. Answer: The last entry on the balance sheet,
stockholders' equity is the owners' residual share of the business,
including their original investment plus any money the firm has earned
and retained since its inception.
Stockholders' equity includes preferred stock, common stock, paid-in-
capital in excess of par, and retained earnings. However, the net worth of
the firm includes only the common stock, paid-in-capital in excess of
par, and retained earning.
⫸ Balance Sheet Assets. Answer: -organized in order of liquidity:
1. Current Assets
,-includes all cash and items expected to be converted into cash in next
12 months
A. Cash and Equivalents - money market
B. Accounts Receivable - amounts due from customers
C. Inventory - cost of raw materials
D. Prepaid Expenses - rents, taxes, prepaid advertising
2. Fixed Assets
A. Property Plant and Equipment
-factories
3. Other Assets
A. Intangible Assets
-brand names, trademarks, formulas, etc
⫸ Cash and cash equivalents. Answer: assets such as checking account
balances at commercial banks that can be used directly as means of
payment.
⫸ Marketable securities. Answer: represent liquid short-term
investments, which financial analysts view as a form of "near cash."
They include Treasury notes, commercial paper, and others.
, ⫸ Accounts receivable. Answer: represent the amount customers owe
the firm from sales made on credit.
⫸ Inventories. Answer: include raw materials, work in process (partially
finished goods), and finished goods held by the firm.
⫸ Intangible assets. Answer: items such as patents, trademarks,
copyrights, or mineral rights entitling the company to extract oil and gas
on specific properties.
⫸ Gross property, plant, and equipment (PP&E). Answer: the original
cost of all real property, structures, and long-lived equipment owned by
the firm.
⫸ Net property, plant, and equipment. Answer: calculated as Gross
PP&E less accumulated depreciation - the cumulative expense recorded
for the depreciation of fixed assets since their purchase; this reflects a
decline in the asset's economic value over time. The one fixed asset that
is not depreciated is land because it seldom declines in value.
⫸ "book value". Answer: Net PP&E on the balance sheet is the total
"book value" of the assets, which is the original cost of the assets less
accumulated depreciation to date. Depreciation is taken according to
standardized formulas and does not reflect the reduction in actual value
of the assets which can vary for many reasons.
