Analysis Intermediate: Understanding the Balance Sheet

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1.
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.
2.
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.
3.
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.
4.
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.
5.
Current liabilities are those that are paid ______.
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Within one year. This is the accepted time limit.
6.
Shareholders equity is included in which part of the equation for the balance sheet?
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Liabilities. In the world of the balance sheet, it is a liability because it pays for assets.
7.
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.
8.
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.