A company's current ratio is 2.0, and its acid-test ratio is 1.0. How will these ratios be affected if the company pays cash to purchase inventory? The acid-test ratio will decrease, but the current ratio will not change. The current ratio will decrease, but the acid-test ratio will not change. Both the current and acid-test ratios will decrease. Neither the current ratio nor the acid-test ratio will change.

A company's current ratio is 2.0, and its acid-test ratio is 1.0. How will these ratios be affected if the company pays cash to purchase inventory? The acid-test ratio will decrease, but the current ratio will not change. The current ratio will decrease, but the acid-test ratio will not change. Both the current and acid-test ratios will decrease. Neither the current ratio nor the acid-test ratio will change.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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When inventory is sold on account, which of the following is true? Operating cash flows are increased at the time of sale. Total assets are increased by the amount of the gross profit. Net income is increased by the amount of the sales price. Revenue is not increased until the cash is received. Both net income and liabilities are increased by the amount of the sales price.
FIFO and weighted average. But what if a company wants to use LIFO to report its inventory because of the significant tax benefit? How could dollar-value LIFO help them use FIFO for managerial purposes but LIFO for financial statement reporting?
A company's break-even point will not be changed by: a change in the selling price per unit. a change in the income tax rate. a change in the variable cost per unit. a change in total fixed costs.
Which of the following statements Is/are true? Multiple Cholce In a period of rising costs and stable inventory levels, using the FIFO method leads to a higher taxable income and higher net income compared to the LIFO method. All of the other answer choices are true. In a period of falling costs and stable inventory levels, cost of goods sold is the same under LIFO and FIFO. In a period of rising costs and stable inventory levels, using the LIFO method leads to a lower taxable income and higher net income compared to the FIFO method.
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Companies can use various methods to determine the cost of inventory, including FIFO, LIFO, and average cost. In a period in which the cost of inventory is rising, which of the following statements is true? The LIFO method will result in the lowest income tax expense. The LIFO method will result in the highest inventory balance at year-end. The average cost method will result in the highest net income. The LIFO method will result in the lowest cost of goods sold. The average cost method will result in the lowest inventory balance at year-end. The average cost method will result in the highest inventory balance at year-end. The FIFO method will result in the lowest net income. None of the listed choices are correct.
U Company and V Company are identical in all the expects, except the fact the U Company follows FIFO and V Company follows LIFO. If the inventory costs are rising, U Company's inventory turnover ratio and gross profit compared to V Company will be: Lower Higher Lower Lower Higher Higher Higher Lower
Which of the following statement is correct? O Inventory Turnover Ratio is a measure of how much the market is willing to pay (per share) for one dollar's worth of the firm's recorded earnings per share, and it is measure of the market's perception as to the future earnings potential of the firm. All the answers are incorrect. The times interest earned ratio is equal to Earnings Before Taxes (EBT) divided by Debt, and it is often used to assess a company's ability to service the interest on its debt with operating income from the current period. Asset activity ratios measure the ability of a firm to meet its short-term obligations. O When the investors have more confidence about the firm's future growth, then the higher P/E ratio is expected.
Which of the following actions will increase a company's quick ratio? (a) Reduce inventories and use the proceeds to reduce long-term debt.(b) Reduce inventories and use the proceeds to reduce current liabilities.(c) Issue short-term debt and use the proceeds to purchase inventory.(d) Issue equity and use the proceeds to purchase inventory.