Question

 Which of the following statements is correct?

A) The balance sheet for a given year, say 2005, is designed to give us an idea of what  happened to the firm during that year.

B) The difference between the total assets reported on the balance sheet and the debts reported on the statement tells us the current market value of the stockholders equity, assuming the statements are prepared in accordance with generally accepted accounting principles (GAAP).

 C) A typical industrial company's balance sheet lists the firm's most liquid assets first, and then goes on down to the longest-lived assets.

 D) For most companies, the market value of the stock is listed on right-hand side of the the balance sheet.

Answer 1

A is wrong because balance sheet is a report which states the position of the assets, liabilities and capital at a particular point of time (balance sheet is prepared as of date). It does not give the whole idea what happened to the firm. To know that,we need income statement and cash flow statement along with balance sheet.

B is wrong because the stockholders equity is basically the difference between the total assets and total liabilities and not only the debt. Debt forms part of the liabilities but there are other elements like payables, deferred tax liabilities etc.

C is true. First there is mentioning of current asstes of the company (with can be liquidated in less than a year). After that non current assets or long term assets are mentioned.

D is wrong because in balance sheet, only the book value of share is mentioned. There is no mentioning of market value of stock in the balance sheet