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17) Which of the following statements is CORRECT? a. The inventory turnover ratio and days sales...

17)

Which of the following statements is CORRECT?

a. The inventory turnover ratio and days sales outstanding (DSO) are two ratios that are used to assess how effectively a firm is managing its current assets.
b. If a firm sold some inventory on credit as opposed to cash, then there is no reason to think that either its current or quick ratio would change.
c. If a firm sold some inventory on credit, then its current ratio would probably not change much, but its quick ratio would decline.
d. If a firm has high current and quick ratios, then it must be managing its liquidity position well.

e. If a firm sold some inventory for cash and left the funds in its bank account, then its current ratio would probably not change much, but its quick ratio would decline.

Which of the following statements is CORRECT?

a. Common equity includes common stock and retained earnings, less accumulated depreciation.
b. The retained earnings account as reported on the balance sheet shows the amount of cash that is available for paying dividends.
c. If a firm reports a loss on its income statement, then the retained earnings account as shown on the balance sheet will be negative.
d. A firm can show a large amount of retained earnings on its balance sheet yet need to borrow cash to make required payments.
e. Since depreciation increases the firm's net cash provided by operating activities, the more depreciation a company has, the larger its retained earnings will be, other things held constant.

Solutions

Expert Solution

1. Option c is correct option. This is because selling inventory on credit decrease quick ratio.

Option a is incorrect. As DSO and inventory turnover focuses on operational efficiency and not on current assets
Option b is incorrect. As Quick Ratio decreases.
Option d is incorrect as high current ratio means cash is blocked and not utilised well.
Option e is incorrect as quick ratio would increase.

2. Option c is correct option. If if it current liabilities is very large then retained earnings might not sufficient
All other options are incorrect.

jeff jeffy answered 2 years ago
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