Which of the following statements is true about the values recorded in the balance sheet of a firm?
A)The book value of a firm's assets will be equal to the market value of the firm's assets.
B)The equity section of a firm's balance sheet represents the difference between the market value of the firm's assets and the book value of the firm's liabilities.
C)The equity section of a firm's balance sheet represents the difference between the market value of the firm's assets and the market value of the firm's liabilities.
D)The book value of a firm's assets will be higher than the market value of the firm's assets.
E)The book value of a firm's debt generally is equal to or very close to the market value of the firm's liabilities.

Question

Quizplus · Accepted Answer

The book value of a firm's debt is typically equal to the market value of its liabilities because debt instruments are typically traded in financial markets and their prices are readily observable. However, the book value of a firm's assets may not accurately reflect their true market value due to factors such as changes in market conditions or technological innovations that can make assets obsolete. The equity section represents the residual value of the firm after accounting for its liabilities and is typically based on book values rather than market values. Therefore, choices A, B, and C are not true statements. Choice D is not necessarily true for all firms and depends on the specific assets being considered.

Which of the Following Statements Is True About the Values