Question

A company is involved in  investing activities when these:

		activities involve buying and selling productive resources with long lives (such as buildings, land, equipment, and tools), purchasing investments, and lending to others.
		activities are directly related to running the core business to earn profits.
		activities involve borrowing from banks and repaying bank loans.
		activities involve borrowing from receiving contributions from shareholders, or paying dividends to shareholders.

Which of the following is true?

		Credits decrease both assets and liabilities.
		Credits increase expenses and decrease liabilities.
		Credits increase revenues and decrease expenses.
		Credits increase both assets and liabilities.

A company goes ahead and purchases inventory. The impact on the current ratio is:

		positive, if CA < CL to start with and inventory is purchased on credit.
		zero, if inventory was purchased using cash.
		negative, if CA > CL to start with and inventory is purchased on credit.
		All of the choices are correct.

The expense recognition principle requires:

		that current assets and current liabilities are stated in a certain order on the balance sheet.
		that expenses should be split between Cost of Goods Sold (sometimes called Cost of Sales) and Selling Expenses.
		that costs are recognized as expenses in the same period as the revenues they generate.
		that expenses should be recognized on periodic basis.

A company is involved in  operating activities when these:

		activities are directly related to running the core business to earn profits.
		activities involve borrowing from banks, repaying bank loans, receiving contributions from shareholders, or paying dividends to shareholders.
		activities involve buying and selling resources such as purchasing investments and lending to others.
		activities involve buying and selling productive resources with long lives (such as buildings, land, equipment, and tools).

Answer 1

1

A company is involved in investing activities when these activities involve buying and selling productive resources with long lives (such as buildings, land, equipment, and tools), purchasing investments, and lending to others.

Investing activities include Capital expenditures, investments, giving loans.

Option A is correct

2

Credits increase revenues and decrease expenses.

Option C is correct

3

The current ratio will increase when Current liabilities exceed Current Assets

The current ratio will decrease when Current Assets exceed Current Liabilities

The current ratio will not be impacted for cash purchase.

All of the choices are correct.

Option D is correct

4

The expense recognition principle requires that costs are recognized as expenses in the same period as the revenues they generate.

Option C is correct

5

A company is involved in operating activities when these activities are directly related to running the core business to earn profits.

Operating activities relate to principal activities of business.

Option A is correct