Which of the statements is true about the values recorded in the balance sheet o
ID: 2800683 • Letter: W
Question
Which of the statements is true about the values recorded in the balance sheet of a firm?
a.
The book values of a firm's assets will be equal to the market values of the firm's assets.
b.
The book values of a firm's liabilities will be higher than the market values of the firm's liabilities.
c.
The equity section of a firm's liability represents the difference between the market value of the firm's assets and the market value of the firm's liabilities.
d.
The book values of a firm's assets will be higher than the market values of the firm's assets.
e.
The book values of a firm's debt will be very close to the market values of the firm's liabilities.
a.
The book values of a firm's assets will be equal to the market values of the firm's assets.
b.
The book values of a firm's liabilities will be higher than the market values of the firm's liabilities.
c.
The equity section of a firm's liability represents the difference between the market value of the firm's assets and the market value of the firm's liabilities.
d.
The book values of a firm's assets will be higher than the market values of the firm's assets.
e.
The book values of a firm's debt will be very close to the market values of the firm's liabilities.
Explanation / Answer
a. False, book values of firm's assets are generally quoted at lower than market values because they are quoted at the price at which they were purchased and the depreciable assets reflect the written down value. Market value in their cases will be lower.
b. False, the book values of liabilities are supposed to be close to their market values not higher than it.
c. False, equity section shows the total of equity shares held by firm in the form of common stock, retained earnings, capital surplus and treasury stock. The equity section should represent the difference between the book value of firm's assets - the book value of firm's liabilities not the market values.
d. False
e. This statement is true because the book value of firm's debt is often the amount the company is obligated to pay at a certain point of time in near future. The amount that reflects in balancesheet is often the amount, the company owes to its creditors.
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