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Stocks 302: Understanding the Balance Sheet

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1.
Balance sheets balance taxes with income.
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False. Balance sheets balance assets with liabilities. Taxes and income are included in assets and liabilities.
2.
Shareholder equity is the sum of the companys assets.
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False. The value of assets remaining after all the liabilities have been accounted for belongs to the shareholders.
3.
Which of the following pieces of information about a company do balance sheets not provide?
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The stock quote of the company. Balance sheets provide financial information on a company. They do not include stock quotes.
4.
On the balance sheet, plants and machinery are included under _______.
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Assets. Since they provide economic benefit to a company, they are assets.
5.
Current assets are called "current" because they are usually converted to cash _______.
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Within one year. This is the defining quality of current assets.
6.
A companys assets are paid for with liabilities and shareholder equity.
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True. Liabilities (debt) and shareholder equity (stock) finance the purchase of assets.
7.
Too many liabilities on a company balance sheet can indicate the danger of bankruptcy.
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True. Too many liabilities make investors nervous.
8.
How long must the useful life of an asset be for it to be treated as a fixed asset?
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More than one year. If its useful life is more than one year, an asset will be considered fixed.