Analysis Intermediate: Understanding the Balance Sheet

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1.
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.
2.
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.
3.
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.
4.
Shareholder equity is ________.
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The amount of capital invested by the owners. This is evidenced by stock ownership.
5.
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.
6.
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.
7.
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.
8.
Current liabilities are those that are paid ______.
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Within one year. This is the accepted time limit.