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Exam 13: Financial Statement Analysis

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Question 81

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Which of the following statements regarding the quick ratio is incorrect?

A) The quick ratio is also known as the acid-test ratio.
B) The quick ratio ignores some current assets that are less liquid than others.
C) The quick ratio is a conservative variation of the current ratio.
D) The quick ratio equals quick assets divided by total liabilities.

E) A) and D)
F) None of the above

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Question 82

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Indicate whether each of the following statements about financial statement analysis is true or false.Working capital measures a company's immediate debt-paying ability.Accounts receivable turnover is a direct measure of a company's uncollectible accounts expense.Accounts receivable turnover is calculated by using the following formula: net credit sales ÷ average accounts receivable.Net credit sales is sales on account plus sales returns and discounts.The amount of average receivables can be calculated using the amount of receivables shown on balance sheets for the current year and previous year.

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Working capital measures a company's imm...

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Question 83

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As of December 31, Year 1, Gant Corporation had a current ratio of 1.29, quick ratio of 1.05, and working capital of $18,000. The company uses a perpetual inventory system and sells merchandise for more than it cost. On January 1, Year 2, Gant paid $250 for transportation in cost on merchandise it had received. Which of the following statements is incorrect?

The following information is from the financial records of Newton Company for Year 2: Required: Calculate the number of times interest is earned for Newton in Year 2. Round your answer to one decimal place. $\begin{array}{|l|lc|}\hline \text { Sales } & \$ & 620,000 \\\hline \text { Interest expense } & 26,000 \\\hline \text { Income tax expense } & 46,000 \\\hline \text { Net income } & 104,000 \\\hline\end{array}$

Perhaps D should read: Current assets increase as D is correct as written.Done. JMF If the company purchased a $60,000 piece of equipment by paying $30,000 and having the rest financed with a short-term note from the bank, then immediately after this transaction what is the expected impact on the components of the current ratio?

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