EBK FINANCIAL MANAGEMENT: THEORY & PRAC
15th Edition
ISBN: 9781305886902
Author: EHRHARDT
Publisher: CENGAGE LEARNING - CONSIGNMENT
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Chapter 12, Problem 2Q
Summary Introduction
To choose: The items which rises spontaneously with rises in sales.
Expert Solution & Answer
Explanation of Solution
Accrued wages, accounts payable and accrued taxes rise spontaneously.
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Students have asked these similar questions
Which one of the following is an advantage of LIFO?
a. In periods of rising prices, less income taxes are paid
b. In periods of rising prices, more holding gains are reported in net income
c. Record keeping and financial statement preparation are easier
d. Conservative income statement and balance sheet disclousures result from falling prices
During a period of inflation, an account balance remains constant. With respect to this account, a purchasing power gain will be recognized if the account is a:
a. Monetary liability
b. Monetary asset
c. Nonmonetary liability
d. Nonmonetary asset
Comment on the following statements with suitable example:
i. The ratio return on assets has net income in the numerator and total
assets in the denominator. Explain how each part of the ratio could
cause return on assets to fall.
ii. Explain how return on assets could decline, given an increase in net
profit margin.
iii. If quoted market prices are not available, a personal financial
statement cannot be prepared. Comment.
Chapter 12 Solutions
EBK FINANCIAL MANAGEMENT: THEORY & PRAC
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- What does an increase in the allowance for receivables result in? A A decrease in current liabilities B An increase in net profit C An increase in working capital D A decrease in working capitaarrow_forwardWhat are some possible negative signals when the product of the accounts receivable turnover ratio is lower (i.e., fewer times)?arrow_forward1.-The only effect of a change in the investment of accounts receivable is the extra interest to be paid to finance increases or the interest saved by lowering the investment. Yes or no?arrow_forward
- 16. What do you call for the likelihood of loss due to customers are not paying their amounts owing? a. Discount risk b. Credit risk c. Payment risk d. Loss riskarrow_forwardWhich one of the following statements is correct? A. If a firm decreases its inventory period, its accounts receivable period will also decrease. B. The longer the cash cycle, the more cash a firm typically has available to invest. C. A firm would prefer a negative cash cycle over a positive cash cycle. D. Decreasing the inventory period will also decrease the payables period. E. Both the operating cycle and the cash cycle must be positive values.arrow_forwardWhich one of the following is a measure of long term solvency? A. Price earning ratio B. Profit margin C. Cash coverage ratio D. Receivables turnover E. Quick ratioarrow_forward
- During a period of inflation, an account balance remains constant. With respect to this account, a purchasing power loss will be recognized if the account is a: a. Monetary asset b. Monetary liability c. Nonmonetary asset d. Nonmonetary liabilityarrow_forwardWhich of the following would increase risk? a. Raise the level of working capital b. Increase the amount of equity financing c. Increase the amount of short term borrowing d. Decrease the amount of inventory by formulating an effective inventory policyarrow_forwardThe purpose of the inflation premium is to maintain the purchasing power of money while it is loaned to someone else. TTrueFFalse What kind of problem bad credit risks people pose to financial intermediaries ? AMoral hazard BNone of the above CAdverse Selection DFree-ridingarrow_forward
- 1. Modes of extinguishing obligations when creditor abandons his right to collect. (PLEASE EXPLAIN YOUR ANSWER) A. Condonation B. Forfeiture C. Debt D. Damages 2. Fall after the increase reaches a certain variable amount, this is called: (PLEASE EXPLAIN YOUR ANSWER) A. Process factor B. Law of return C. Inflation D. Supply & demand 3. It is always true that the effective rate is greater than the nominal rate when m ≥ 2. (PLEASE EXPLAIN YOUR ANSWER) A. True B. False 4. (A/F, i%, N) = (A/P, i%, N) + i (PLEASE EXPLAIN YOUR ANSWER) A. True B. Falsearrow_forwardWhere will we record when there is a decrease in liability? a. Debit side b. Credit side c. None of the options d. Neutralarrow_forwardA decrease in reserve requirements could lead to an A. increase in bank lending. B. increase in the money supply. C. increase in the discount rate. D. both A and B.arrow_forward
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