Analysis Intermediate: Understanding the Balance Sheet

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1.
If you want to learn the kinds of assets a company is buying, you can find them on the balance sheet.
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True. The balance sheet will identify assets that the company has bought.
2.
The company E-Publisher.com owns exclusive rights to its material. This copyright is an asset.
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True. Copyright is an intangible asset.
3.
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.
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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.
4.
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.
5.
Current liabilities are those that are paid ______.
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Within one year. This is the accepted time limit.
6.
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.
7.
If the total liabilities of a company are 2 million dollars, and total assets are 5 million dollars, how much is shareholder equity?
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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.
8.
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.