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Stocks 302: Understanding the Balance Sheet

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1.
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.
2.
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.
3.
The balance sheet item that allows one to spread the purchase price of a fixed asset over the course of years is called ________.
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Depreciation. Depreciation is subtracted on the asset side of the balance sheet.
4.
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.
5.
Shareholder equity is ________.
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The amount of capital invested by the owners. This is evidenced by stock ownership.
6.
Balance sheets provide information on a companys stock performance.
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False. Balance sheets provide financial information, but not stock performance information.
7.
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.
8.
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.