Analysis Intermediate: Understanding the Balance Sheet

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1.
Balance sheets balance taxes with income.
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False. Balance sheets balance assets with liabilities. Taxes and income are included in assets and liabilities.
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.
Liabilities are what a company _______.
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Owes to others. Whatever a company must pay to another party is a liability.
4.
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.
5.
The resources that a firm buys are not considered assets unless they are believed to provide economic benefits.
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True. Otherwise, they are merely items.
6.
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.
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.
Shareholder equity is ________.
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The amount of capital invested by the owners. This is evidenced by stock ownership.