Choose wisely. There is only one correct answer to each question.
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1.
Steve, a beginning investor, wants to see the balance sheet of his chosen company show a huge profit. If the balance sheet is prepared correctly, it is possible that it will show a profit during a good year.
False. One of the cardinal rules of balance sheets is that assets and liabilities balance each other. Steve is looking at the wrong piece of data.
2.
On the balance sheet, plants and machinery are included under _______.
Assets. Since they provide economic benefit to a company, they are assets.
3.
If you want to learn the kinds of assets a company is buying, you can find them on the balance sheet.
True. The balance sheet will identify assets that the company has bought.
4.
How long must the useful life of an asset be for it to be treated as a fixed asset?
More than one year. If its useful life is more than one year, an asset will be considered fixed.
5.
Liabilities are what a company _______.
Owes to others. Whatever a company must pay to another party is a liability.
6.
The resources that a firm buys are not considered assets unless they are believed to provide economic benefits.
True. Otherwise, they are merely items.
7.
Shareholder equity is the sum of the companys assets.
False. The value of assets remaining after all the liabilities have been accounted for belongs to the shareholders.
8.
A companys assets are paid for with liabilities and shareholder equity.
True. Liabilities (debt) and shareholder equity (stock) finance the purchase of assets.
