Question 1

Significant weight is seldom given to the cash ratio unless the firm is in financial trouble.

Accepted Answer

A) True 
 B)False  True

Question 2

Management should usually strive to keep the cash ratio high.

Accepted Answer

A) True 
 B)False  False

Question 3

Which of the following types of businesses would normally have the shortest operating cycle?

Accepted Answer

A) A retail clothing store 
B) A grocery store 
C) A wholesale furniture store 
D) A car manufacturer 
E) A car dealer 
A) A retail clothing store 
B) A grocery store 
C) A wholesale furniture store 
D) A car manufacturer 
E) A car dealer B

Question 4

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 5

Typically,which of the following would be considered to be the most indicative of a firm's short-term debt paying ability?

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 6

Smith Company presents the following data for 2012. $\begin{array}{llcc}
  \text {  Inventories, begmning of year} &\$310,150  \
 \text {   Inventories, end of year} &340,469\
 \text { Cost of Goods Sold } &2,103,696\
 \text { Net Sales } &8,690,150\
\end{array}$

The number of days' sales in inventory is:

Accepted Answer

A) 65.8. 
B) 60.8. 
C) 59.1. 
D) 58.1. 
E) 60.4. 
A) 65.8. 
B) 60.8. 
C) 59.1. 
D) 58.1. 
E) 60.4.

Question 7

Which of the following reasons should not be considered in order to explain why the receivables appear to be abnormally high?

Accepted Answer

A) Sales volume expanded materially late in the year. 
B) Receivables have collectibility problems and possibly some should have been written off. 
C) The company seasonally dates invoices. 
D) Material amount of receivables are on the installment basis. 
E) Sales volume decreases materially late in the year. 
A) Sales volume expanded materially late in the year. 
B) Receivables have collectibility problems and possibly some should have been written off. 
C) The company seasonally dates invoices. 
D) Material amount of receivables are on the installment basis. 
E) Sales volume decreases materially late in the year.

Question 8

Using the direct write-off method,the bad debt expense is recorded when a specific customer's account is determined to be noncollectible.

Accepted Answer

A) True 
 B)False

Question 9

In terms of liquidity,it is to management's advantage to show investments under investments instead of marketable securities.

Accepted Answer

A) True 
 B)False

Question 10

In order to classify cash as a current asset,it must be free from any restrictions that would prevent its deposit or use to pay creditors classified as long-term.

Accepted Answer

A) True 
 B)False

Question 11

To qualify as a marketable security,the investment must be readily marketable and it must be the intent of management to convert the investment to cash within the current operating cycle or a year,whichever is longer.

Accepted Answer

A) True 
 B)False

Question 12

The following are the inventory records of the Garret Company:
$\begin{array}{c}
\begin{array}{lll}
\
 \text {January 1}\
 \text {Purchases:}\
 \text {February 10}\
 \text {July 15}\
 \text {November 1}\
 \text {December 10}\
 \text {Available} 
\end{array}
\begin{array}{cc}
\underline{\text {Units}}&\underline{\text {Cost}}\
40 & \$ 12 \
\
20 & 13 \
40 & 14 \
50 & 15 \
\underline{30}& 16\
80& 
\end{array}
\begin{array}{c}
\underline{\text { Total }}\
\$480\
\
260\
560\
750\
\underline{480}\
\$2,530
\end{array}

\end{array}$
 
Ending inventory consists of 30 units from the July purchase.
Note: The company uses a periodic inventory system.
Required:
Calculate ending inventory and cost of sales,using: (a)FIFO, (b)LIFO, (c)average,and (d)specific identification.

Accepted Answer

a.FIFO
Ending Inventory
Cost of Sales
30

Question 13

An approximation of the operating cycle can be determined from the receivable liquidity figures and the inventory liquidity figures.

Accepted Answer

A) True 
 B)False

Question 14

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 15

Working capital of a business is the excess of current assets over current liabilities.

Accepted Answer

A) True 
 B)False

Question 16

The valuation problem from waiting to collect a receivable is ignored in the valuation of receivables and notes that are classified as current assets.

Accepted Answer

A) True 
 B)False

Question 17

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 18

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 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

Which of the following accounts would not be classified as a current asset?

Accepted Answer

A) Cash restricted for retirement of bonds 
B) Cash and equivalents 
C) Cash and certificates of deposit 
D) Time deposits 
E) Cash 
A) Cash restricted for retirement of bonds 
B) Cash and equivalents 
C) Cash and certificates of deposit 
D) Time deposits 
E) Cash

Significant weight is seldom given to the cash ratio unless the firm is in financial trouble.

Management should usually strive to keep the cash ratio high.

Which of the following types of businesses would normally have the shortest operating cycle?

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.

Typically,which of the following would be considered to be the most indicative of a firm's short-term debt paying ability?

Smith Company presents the following data for 2012. Inventories, begmning of year \3 10,150 Inventories, end of year 340,469 Cost of Goods Sold 2,103,696 Net Sales 8,690,150 The number of days' sales in inventory is:

Which of the following reasons should not be considered in order to explain why the receivables appear to be abnormally high?

Using the direct write-off method,the bad debt expense is recorded when a specific customer's account is determined to be noncollectible.

In terms of liquidity,it is to management's advantage to show investments under investments instead of marketable securities.

In order to classify cash as a current asset,it must be free from any restrictions that would prevent its deposit or use to pay creditors classified as long-term.

To qualify as a marketable security,the investment must be readily marketable and it must be the intent of management to convert the investment to cash within the current operating cycle or a year,whichever is longer.

An approximation of the operating cycle can be determined from the receivable liquidity figures and the inventory liquidity figures.

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

Working capital of a business is the excess of current assets over current liabilities.

The valuation problem from waiting to collect a receivable is ignored in the valuation of receivables and notes that are classified as current assets.

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

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

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?

Which of the following accounts would not be classified as a current asset?

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

Significant weight is seldom given to the cash ratio unless the firm is in financial trouble.

Management should usually strive to keep the cash ratio high.

Which of the following types of businesses would normally have the shortest operating cycle?

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.

Typically,which of the following would be considered to be the most indicative of a firm's short-term debt paying ability?

Smith Company presents the following data for 2012. Inventories, begmning of year \3 10,150 Inventories, end of year 340,469 Cost of Goods Sold 2,103,696 Net Sales 8,690,150 The number of days' sales in inventory is:

Which of the following reasons should not be considered in order to explain why the receivables appear to be abnormally high?

Using the direct write-off method,the bad debt expense is recorded when a specific customer's account is determined to be noncollectible.

In terms of liquidity,it is to management's advantage to show investments under investments instead of marketable securities.

In order to classify cash as a current asset,it must be free from any restrictions that would prevent its deposit or use to pay creditors classified as long-term.

To qualify as a marketable security,the investment must be readily marketable and it must be the intent of management to convert the investment to cash within the current operating cycle or a year,whichever is longer.

An approximation of the operating cycle can be determined from the receivable liquidity figures and the inventory liquidity figures.

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

Working capital of a business is the excess of current assets over current liabilities.

The valuation problem from waiting to collect a receivable is ignored in the valuation of receivables and notes that are classified as current assets.

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

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

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?

Which of the following accounts would not be classified as a current asset?

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