Question

Question 1) All else held constant, which of the following actions would increase the amount of cash on a company’s balance sheet?

a) The company buys new equipment on credit terms.

b) The company gives customers less time to pay their bills.

c) The company repurchases common stock.

d) The company pays a dividend.

e) None of the above.

Question 2) Which of the following items is not normally considered to be a current asset or current liability?

a) Accounts receivable.

b) Note payable due in 18 months.

c) Inventory.

d) Accounts payable.

e) None of the above.

Answer 1

Question 1) All else held constant, which of the following actions would increase the amount of cash on a company’s balance sheet?

The correct answer is option b) The company gives customers less time to pay their bills.

If the company gives less time to pay their bills, then the amount of cash on the company's balance sheet increases because it now collects cash sooner.

a) The company buys new equipment on credit terms. Incorrect because cash stays same if new equipment is bought on credit terms.

c) The company repurchases common stock. Incorrect because cash decreases with common stock repurchase.

d) The company pays a dividend. Incorrect because cash decreases with dividend payments.

Question 2) Which of the following items is not normally considered to be a current asset or current liability?

Option b) is correct

b) Note payable due in 18 months is a liability but not a current liability because it is due in more than one year.

a) Accounts receivable. Incorrect because it is a current asset.

c) Inventory. Incorrect because it is a current asset.

d) Accounts payable. Incorrect because it is a current liability.