Which statement is true?

Which statement is true?

a. The higher the company's cash to current liabilities ratio, the better is the company.
b. The higher the company's cash to current liabilities ratio, the better liquid is the company.
c. The current ratio is a superior tool in assessing short-term liquidity.
d. None of these.

Answer: B

Which statement is true:

Which statement is true:

a. When examining a company's current ratio it is important to also assess the quality of the current assets and liabilities.
b. If a company has a current ratio greater than one then there is no chance it will go bankrupt in the next year.
c. The current ratio is a superior tool in assessing short-term liquidity.
d. None of these

Answer: A

Which statement is true:

Which statement is true:

a. Liquidity is viewed as the company's ability to meet its short term and long term obligations.
b. Liquidity is generally measured by the company's ability to pay its short term obligations using its short assets.
c. The current ratio is a superior tool in assessing short-term liquidity.
d. If a company has a current ratio greater than one then there is no chance it will go bankrupt in the next year.

Answer: B

The dividends paid are part of which section:

The dividends paid are part of which section:

a. Investing activities
b. Financing activities
c. Operating activities
d. None of these

Answer: B

Which statement is true:

Which statement is true:

a. The issuance of stock might include the capital stock account and retained earnings.
b. The issuance of stock might include both the capital stock account and the additional paid-in capital account.
c. The issuance of stock might include the additional paid-in capital account and retained earnings.
d. The issuance of stock might include the capital stock account, the additional paid-in capital account and retained earnings.

Answer: B

Which statement is true:

Which statement is true: 

a. Amortization expense is treated as an increase in cash flow from investing activities.
b. Amortization expense is treated as an increase in cash flow from financing activities.
c. Amortization expense is treated as an increase in cash flow from operating activities.
d. None of these

Answer: C

Which statement is true:

Which statement is true: 

a. Depreciation expense is treated as an increase in cash flow from investing activities.
b. Depreciation expense is treated as an increase in cash flow from financing activities.
c. None of these
d. Depreciation expense is treated as an increase in cash flow from operating activities.

Answer: D

Which statement is the most correctable?

Which statement is the most correctable? 

a. Operating Activities include changes in cash, account receivable, inventory
b. Operating Activities include changes in account receivable, inventory, and prepaid expense, accrual expense
c. Operating Activities include changes in account receivable, inventory, prepaid expense, and dividend payable
d. Operating Activities include changes in account receivable, inventory, prepaid expense, accrual expense, tax payable and dividend payable

Answer: B

Which statement is true:

Which statement is true: 

a. Net income is treated as an increase in cash flows from financing activities.
b. All of these
c. Net income is treated as an increase in cash flows from investing activities.
d. Net income is treated as an increase in cash flows from operating activities.

Answer: D

Losses from investing activities are treated as a increase in cash flows from operating activities. The reason for this adjustment is that:

Losses from investing activities are treated as a increase in cash flows from operating activities. The reason for this adjustment is that:

a. These transactions are not included in net income but are not classified as operating activities for cash flow purposes.
b. These transactions are included in net income that is classified as operating activities for cash flow purposes.
c. These transactions are included in net income but are not classified as investing activities for cash flow purposes.
d. These transactions are included in net income but are not classified as operating activities for cash flow purposes.


Answer: D

Working capital is:

Working capital is:

a. the amount by which the value of a company's current assets exceeds its current liabilities
b. the amount by which the value of a company's current assets equal its current liabilities
c. the amount by which the value of a company's current assets plus its current liabilities
d. None of these

Answer: A

Asset turnover:

Asset turnover: 

a. often used to measure how well a firm utilizes its assets.
b. often used to measure a firm's ability to pay its interest expense.
c. often used to measure the overall profit margin of the firm.
d. calculated by dividing net Income by dividends and interest.

Answer: A

The Times Interest Earned ratio is:

The Times Interest Earned ratio is:

a. often used to measure how well a firm utilizes its assets.
b. often used to measure a firm's ability to pay its interest expense.
c. often used to measure the overall profit margin of the firm.
d. calculated by dividing net Income by dividends and interest.

Answer: B

Which of the following does not represent future expected cash inflows?

Which of the following does not represent future expected cash inflows? 

a. accounts receivable
b. prepaid expenses
c. inventory
d. notes receivable

Answer: B

Which of the following industries would you expect to have the highest inventory turnover?

Which of the following industries would you expect to have the highest inventory turnover? 

a. restaurant
b. car dealer
c. jewelry store
d. department store

Answer: A

Which of the following would be least likely to affect the quality of receivables?

Which of the following would be least likely to affect the quality of receivables? 

a. Credit policy
b. Right of return policy
c. Collection procedures
d. Sales commissions

Answer: D

Which of the following is not a measure of a company's a solvency?

Which of the following is not a measure of a company's a solvency? 

a. Debt to equity ratio
b. Equity to assets ratio
c. Sales to assets ratio
d. Debt to assets ratio

Answer: C

Which of the following is likely to be used to measure a company's solvency?

Which of the following is likely to be used to measure a company's solvency? 

a. Net operating profit margin
b. Current ratio
c. Financial leverage
d. Cash to current liabilities ratio

Answer: C

Which of the following is not likely to be used to measure a company's liquidity?

Which of the following is not likely to be used to measure a company's liquidity? 

a. Working capital
b. Financial leverage
c. Current ratio
d. Acid-test (quick) ratio

Answer: B

Which of the following best describes for the current ratio?

Which of the following best describes for the current ratio? 

a. debt ratio
b. operating performance ratio
c. liquidity ratio
d. efficiency ratio

Answer: C

A current ratio of 2.5:

A current ratio of 2.5:

a. Tells us that current assets are twice and a half current liability.
b. Is very good.
c. Indicates a problem with liquidity of inefficiency current assets.
d. None of these.

Answer: C

The common tool of financial statement analysis which compares a company's financial condition and performance across time is:

The common tool of financial statement analysis which compares a company's financial condition and performance across time is:

a. horizontal analysis
b. vertical analysis
c. ratio analysis
d. all of these

Answer: A

The ratio of the cost of goods sold to total assets is call:

The ratio of the cost of goods sold to total assets is call:

a. Asset turnover
b. ROA
c. Asset efficiency
d. Inventory turnover

Answer: A

It is usually the most liquid of the current assets. What is it?

It is usually the most liquid of the current assets. What is it?

a. Cash
b. Inventory
c. Marketable security
d. All of these

Answer: A

Which of the following statements is most correct?

Which of the following statements is most correct? 

a. The cheapest form of capital is equity
b. Companies with the highest current ratios have the most liquidity
c. The best indicator of short term financing needs is the cash flow adequacy ratio
d. A faster growing company is more likely to need external financing than a slower growing company

Answer: D

Which of the following statements is most correct?

Which of the following statements is most correct? 

a. Common Size financial income statements provide information about major sources and uses of cash
b. Companies with the highest sales growth will have the fewest liquidity problems
c. Pro forma statements are the same as common size statements
d. The more efficiently a company manages its working capital the greater its liquidity, all else equal

Answer: D

When a company is experiencing rapid growth, which of the following statements is the most correct?

When a company is experiencing rapid growth, which of the following statements is the most correct? 

a. Cash flow from operations will be greater than cash flow from investing
b. The company will likely need more outside financing than if growth was slower
c. Cash flow from operations will be high due to rapid growth allowing company to pay down debt
d. Rapid growth will increase internally generated funds allowing higher dividend payments in periods of rapid growth

Answer: B

It is usually the least liquid of the current assets. What is it?

It is usually the least liquid of the current assets. What is it?

a. Cash
b. Inventory
C. Marketable security
d. All of these

Answer: B

Cash flows from investing activities include which activity?

Cash flows from investing activities include which activity?

a. Changes in accounts receivable
b. Sale of office building
c. Repaying principal to lenders
d. Stock dividends paid

Answer: B

When a long-term asset is sold for cash at a price in excess of its book value, the sale should be reported as an inflow of cash from an investing activity equal to which of the following?

When a long-term asset is sold for cash at a price in excess of its book value, the sale should be reported as an inflow of cash from an investing activity equal to which of the following?

a. Selling price (proceeds)
B. Book value
c. Selling price less the amount of the gain
d. Selling price plus the amount of the gain

Answer: A