Analysis Intermediate: Understanding the Balance Sheet

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1.
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.
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.
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.
Balance sheets balance _______.
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Assets with liabilities. Equity, debt, taxes, and income are all included in assets and liabilities.
5.
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.
6.
Which of the following is not a current asset?
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Stock. Stock is not a current asset. On the balance sheet, it is a liability.
7.
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.
8.
How do you know when a document is a balance sheet?
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Its assets equal its liabilities and shareholder equity. To be a balance sheet, all of the assets must equal all of the liabilities and shareholder equity.