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1.
Balance sheets provide information on a companys stock performance.
False. Balance sheets provide financial information, but not stock performance information.
2.
The resources that a firm buys are not considered assets unless they are believed to provide economic benefits.
True. Otherwise, they are merely items.
3.
Shareholder equity is ________.
The amount of capital invested by the owners. This is evidenced by stock ownership.
4.
On the balance sheet, plants and machinery are included under _______.
Assets. Since they provide economic benefit to a company, they are assets.
5.
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.
6.
Current liabilities are those that are paid ______.
Within one year. This is the accepted time limit.
7.
The balance sheet item that allows one to spread the purchase price of a fixed asset over the course of years is called ________.
Depreciation. Depreciation is subtracted on the asset side of the balance sheet.
8.
If the total liabilities of a company are 2 million dollars, and total assets are 5 million dollars, how much is shareholder equity?
3 million dollars. Shareholder equity is the difference between total assets and total liabilities. When creating a balance sheet, however, you must include shareholder equity with liabilities.
