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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Inventory Costing Method. In the period of inflation, businesses will choose to use LIFO, whereas, during the deflation period, they will pick FIFO instead if they want to have the lowest income tax. Why is that?
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Why might a company have a high current ratio but a low quick ratio (acidtest ratio)?
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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.
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