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Stocks 302: Understanding the Balance Sheet

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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.
Choose wisely. There is only one correct answer.
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.
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.
3.
Shareholders equity is included in which part of the equation for the balance sheet?
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Liabilities. In the world of the balance sheet, it is a liability because it pays for assets.
4.
When assets outweigh liabilities and shareholder equity on a balance sheet, the sheet has not been constructed correctly.
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True. Balance sheets balance the two sides so that all assets and their sources of payment are accounted for.
5.
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.
6.
Liabilities are what a company _______.
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Owes to others. Whatever a company must pay to another party is a liability.
7.
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.
8.
Shareholder equity is the value of stock on the market.
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False. Shareholder equity is the amount of capital invested by the owners.