Question 1

If a firm has pledged its receivables and its inventory, then the best indicator of its short-term liquidity may be indicated by:

Accepted Answer

A)  working capital 
B)  current ratio 
C)  acid-test 
D)  cash ratio 
E)  days' sales in receivables 
A)  working capital 
B)  current ratio 
C)  acid-test 
D)  cash ratio 
E)  days' sales in receivables

Question 2

Which of the following ratios would generally be used to evaluate a firm's overall liquidity position?

Accepted Answer

A)  working capital 
B)  current ratio 
C)  acid-test ratio 
D)  cash ratio 
E)  inventory turnover in days 
A)  working capital 
B)  current ratio 
C)  acid-test ratio 
D)  cash ratio 
E)  inventory turnover in days

Question 3

A firm that has been on lifo for many years may have some inventory costs that go back ten years or more.

Accepted Answer

A) True 
 B)False

Question 4

The days' sales in receivables ratio gives an indication of the length of time that the receivables have been outstanding at the end of the year.This indication can be misleading if sales are seasonal and/or the company uses a natural business year.

Accepted Answer

A) True 
 B)False

Question 5

When doing external analysis, many of the reasons why the days' sales in receivables is abnormally high or low cannot be determined without access to internal information.

Accepted Answer

A) True 
 B)False

Question 6

The company with the natural business year tends to overstate its accounts receivable turnover, thus overstating its liquidity.

Accepted Answer

A) True 
 B)False

Question 7

Working capital is considered to be more indicative of the short-term, debt-paying ability than is the current ratio.

Accepted Answer

A) True 
 B)False

Question 8

Under inflationary conditions, fifo generally results in a lower profit than does lifo, and this difference can be substantial.

Accepted Answer

A) True 
 B)False

Question 9

If days' sales in receivables are materially longer than the credit terms, this indicates a collection problem.

Accepted Answer

A) True 
 B)False

Question 10

Abbott Company presents the following data for 2010.   The accounts receivable turnover in times per year is:

Accepted Answer

A)  6.9 
B)  7.9 
C)  10.7 
D)  9.7 
E)  none of the answers are correct 
A)  6.9 
B)  7.9 
C)  10.7 
D)  9.7 
E)  none of the answers are correct

Question 11

Liquidity

Accepted Answer

A) True 
 B)False

Question 12

Which of the following would not be a reasonable conclusion when comparing lifo-fifo under an inflationary condition?

Accepted Answer

A)  Lifo generally results in a lower profit than does fifo. 
B)  Fifo reports a higher inventory ending balance. 
C)  Lifo results in a lower profit figure than does fifo. 
D)  Lifo would probably be used for inventory that has a high turnover rate because there would be an immaterial difference in the results between lifo and fifo. 
E)  The cash flow under lifo is greater than the cash flow under fifo by the difference in the resulting tax between the two methods. 
A)  Lifo generally results in a lower profit than does fifo. 
B)  Fifo reports a higher inventory ending balance. 
C)  Lifo results in a lower profit figure than does fifo. 
D)  Lifo would probably be used for inventory that has a high turnover rate because there would be an immaterial difference in the results between lifo and fifo. 
E)  The cash flow under lifo is greater than the cash flow under fifo by the difference in the resulting tax between the two methods.

Question 13

Even an entity on a very profitable course will find itself bankrupt if it fails to meets its obligations to short-term creditors.

Accepted Answer

A) True 
 B)False

Question 14

Management should usually strive to keep the cash ratio high.

Accepted Answer

A) True 
 B)False

Question 15

Days' sales in receivables may be abnormally high at the end of the year if sales volume expanded materially late in the year.

Accepted Answer

A) True 
 B)False

Question 16

If the company closes the year when the activities are at a peak, the number of days' sales in inventory would tend to be overstated and the liquidity would be overstated.

Accepted Answer

A) True 
 B)False

Question 17

Which of the following does not bear on the quality of receivables?

Accepted Answer

A)  shortening the credit terms 
B)  lengthening the credit terms 
C)  right of return privilege 
D)  lengthening the outstanding period 
E)  all of the answers bear on the quality of receivables 
A)  shortening the credit terms 
B)  lengthening the credit terms 
C)  right of return privilege 
D)  lengthening the outstanding period 
E)  all of the answers bear on the quality of receivables

Question 18

A shortening of the credit terms is an indication that there will be more risk in the collection of future receivables.

Accepted Answer

A) True 
 B)False

Question 19

Company A uses lifo and Company B uses fifo for inventory valuation.Otherwise, the firms are of similar size and have the same revenue and expense.Assume inflation.In analyzing liquidity and profitability of the two firms, which of the following will hold true?

Accepted Answer

A)  It is impossible to compare two firms with different inventory methods. 
B)  Company B will have relatively higher profit and higher inventory turnover. 
C)  Company B will have relatively higher profit and lower inventory turnover. 
D)  Company A will have a higher current ratio and acid test ratio, with the same profit. 
E)  Company B will have relatively higher profit and a higher current ratio. 
A)  It is impossible to compare two firms with different inventory methods. 
B)  Company B will have relatively higher profit and higher inventory turnover. 
C)  Company B will have relatively higher profit and lower inventory turnover. 
D)  Company A will have a higher current ratio and acid test ratio, with the same profit. 
E)  Company B will have relatively higher profit and a higher current ratio.

Question 20

Compensating balances reduce the amount of cash available to the borrower to meet obligations and they decrease the effective interest rate for the borrower.

Accepted Answer

A) True 
 B)False

If a firm has pledged its receivables and its inventory, then the best indicator of its short-term liquidity may be indicated by:

Which of the following ratios would generally be used to evaluate a firm's overall liquidity position?

A firm that has been on lifo for many years may have some inventory costs that go back ten years or more.

The days' sales in receivables ratio gives an indication of the length of time that the receivables have been outstanding at the end of the year.This indication can be misleading if sales are seasonal and/or the company uses a natural business year.

When doing external analysis, many of the reasons why the days' sales in receivables is abnormally high or low cannot be determined without access to internal information.

The company with the natural business year tends to overstate its accounts receivable turnover, thus overstating its liquidity.

Working capital is considered to be more indicative of the short-term, debt-paying ability than is the current ratio.

Under inflationary conditions, fifo generally results in a lower profit than does lifo, and this difference can be substantial.

If days' sales in receivables are materially longer than the credit terms, this indicates a collection problem.

Abbott Company presents the following data for 2010. The accounts receivable turnover in times per year is:

Liquidity

Which of the following would not be a reasonable conclusion when comparing lifo-fifo under an inflationary condition?

Even an entity on a very profitable course will find itself bankrupt if it fails to meets its obligations to short-term creditors.

Management should usually strive to keep the cash ratio high.

Days' sales in receivables may be abnormally high at the end of the year if sales volume expanded materially late in the year.

If the company closes the year when the activities are at a peak, the number of days' sales in inventory would tend to be overstated and the liquidity would be overstated.

Which of the following does not bear on the quality of receivables?

A shortening of the credit terms is an indication that there will be more risk in the collection of future receivables.

Company A uses lifo and Company B uses fifo for inventory valuation.Otherwise, the firms are of similar size and have the same revenue and expense.Assume inflation.In analyzing liquidity and profitability of the two firms, which of the following will hold true?

Compensating balances reduce the amount of cash available to the borrower to meet obligations and they decrease the effective interest rate for the borrower.

Introduction to Financial Reporting

Introduction to Financial Statements and Other Financial Reporting Topics

Balance Sheet

Income Statement

Basics of Analysis

Long-Term Debt-Paying Ability

Profitability

For the Investor

Statement of Cash Flows

Expanded Analysis

Special Industries: Banks, Utilities, Oil and Gas, Transportation, Insurance, Real Estate Companies

Personal Financial Statements and Accounting for Governments and Not-For-Profit Organizations

Filters

Exam 6: Liquidity of Short-Term Assets; Related Debt-Paying Ability

If a firm has pledged its receivables and its inventory, then the best indicator of its short-term liquidity may be indicated by:

Which of the following ratios would generally be used to evaluate a firm's overall liquidity position?

A firm that has been on lifo for many years may have some inventory costs that go back ten years or more.

The days' sales in receivables ratio gives an indication of the length of time that the receivables have been outstanding at the end of the year.This indication can be misleading if sales are seasonal and/or the company uses a natural business year.

When doing external analysis, many of the reasons why the days' sales in receivables is abnormally high or low cannot be determined without access to internal information.

The company with the natural business year tends to overstate its accounts receivable turnover, thus overstating its liquidity.

Working capital is considered to be more indicative of the short-term, debt-paying ability than is the current ratio.

Under inflationary conditions, fifo generally results in a lower profit than does lifo, and this difference can be substantial.

If days' sales in receivables are materially longer than the credit terms, this indicates a collection problem.

Abbott Company presents the following data for 2010. The accounts receivable turnover in times per year is:

Liquidity

Which of the following would not be a reasonable conclusion when comparing lifo-fifo under an inflationary condition?

Even an entity on a very profitable course will find itself bankrupt if it fails to meets its obligations to short-term creditors.

Management should usually strive to keep the cash ratio high.

Days' sales in receivables may be abnormally high at the end of the year if sales volume expanded materially late in the year.

If the company closes the year when the activities are at a peak, the number of days' sales in inventory would tend to be overstated and the liquidity would be overstated.

Which of the following does not bear on the quality of receivables?

A shortening of the credit terms is an indication that there will be more risk in the collection of future receivables.

Company A uses lifo and Company B uses fifo for inventory valuation.Otherwise, the firms are of similar size and have the same revenue and expense.Assume inflation.In analyzing liquidity and profitability of the two firms, which of the following will hold true?

Compensating balances reduce the amount of cash available to the borrower to meet obligations and they decrease the effective interest rate for the borrower.

Introduction to Financial Reporting

Introduction to Financial Statements and Other Financial Reporting Topics

Balance Sheet

Income Statement

Basics of Analysis

Long-Term Debt-Paying Ability

Profitability

For the Investor

Statement of Cash Flows

Expanded Analysis

Special Industries: Banks, Utilities, Oil and Gas, Transportation, Insurance, Real Estate Companies

Personal Financial Statements and Accounting for Governments and Not-For-Profit Organizations

Filters