Analysis Intermediate: Understanding the Balance Sheet

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1.
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.
2.
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.
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.
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.
5.
Shareholder equity is ________.
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The amount of capital invested by the owners. This is evidenced by stock ownership.
6.
Balance sheets balance _______.
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Assets with liabilities. Equity, debt, taxes, and income are all included in assets and liabilities.
7.
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.
8.
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.