acc topic 2

Which of the following statements are true regarding the working capital calculation? (Choose every correct answer.)

Accounts receivable are included in current assets. Accounts payable are included in current liabilities.

What are reasons why a well-managed company sometimes attempts to reduce its current ratio? (Choose every correct answer.)

A high current ratio may be a sign that the company has not made the most productive use of its assets. Assets like accounts receivable and merchandise inventory do not earn a high ROI. Funds freed up by reducing the current ratio can be invested in new production equipment or marketing efforts.

Which statements about working capital are correct? (Choose every correct answer.)

It is expressed as a dollar amount, rather than as a financial ratio. It is the excess of a firm's current assets over its current liabilities.

Which of the following statements are generally true regarding the risk-return relationship? (Choose every correct answer.)

Market prices for products and commodities, as well as stock prices, reflect the basic risk-reward relationship. The higher the expected return on an investment, the greater the associated risk. The wider the possible range of outcomes, the greater the risk.

Common expressions of return on investment (ROI) calculation include which of the following? (Choose every correct answer.)

Operating income / Average operating assets Net income / Average total assets

How is the amount of interest earned on an investment calculated?

Principal ($) x Rate (%) x Time (in years)

What do you need to know to calculate the amount of interest earned on an investment? (Choose every correct answer.)

The principal amount invested The length of time the funds are invested The interest rate per year

Many well-managed companies attempt to reduce their current ratio because Blank______.

an overly high current ratio sometimes can be a sign that the company is not making the most productive use of its assets

With a semilogarithmic graph, the ______ scale is arithmetic.

horizontal

Return on investment (ROI) is calculated by dividing net ______ by the average total _______ for the year

income assets

Trend analysis of ratios Blank______.

is a meaningful comparison despite the use of different financial accounting alternatives to develop the data used in the ratios

Return on investment (ROI) Blank______.

is normally calculated using net income as the measure of the return

The numerator of the acid-test ratio includes most current assets but specifically excludes

merchandise inventory

Working capital is calculated as current assets

minus

Which of the following statements are true regarding the working capital calculation? (Choose every correct answer.)

Cash is part of current assets. Merchandise inventory is part of current assets.

Which of the following are normally included in a credit application? (Choose every correct answer.)

Information about bank accounts Information about employment Information about salary

Which of the following are normally included in a credit application? Multiple select question.

Information about liabilities Information about bank accounts Information about other credit relationships

The wider the range of possible outcomes for an investment, the greater the

risk

Which of the following statements are true regarding the acid-test ratio? (Choose every correct answer.)

The acid-test ratio excludes merchandise inventory from the numerator. The acid-test ratio is a more conservative measure of liquidity than the current ratio. The acid-test ratio uses the same denominator as does the current ratio.

______stockholders' equity for the year is normally calculated by adding the beginning stockholders' equity and the ending stockholders' equity and dividing the total by 2.

average

Working capital refers to the excess of a firm's Blank______.

current assets over its current liabilities

In the DuPont model for analyzing ROI, turnover is calculated as______ divided by average total_____

sales assets

Which statements about a firm's return on equity (ROE) are correct? (Choose every correct answer.)

It is normally calculated using average stockholders' equity in the denominator. It expresses profits earned by the firm as a rate of return on the equity provided by stockholders.

Which of the following statements are true regarding a semilogarithmic graph? (Choose every correct answer.)

Semilogarithmic graphs are frequently used to plot data that is expected to change significantly over time, such as a company's sales data. If the data increases at a constant rate over the period of time shown on the horizontal scale, the plot will be a straight line.

Which of the following statements are true regarding the current ratio? (Choose every correct answer.)

The current ratio is calculated as current assets divided by current liabilities. Rent payable is included in the denominator. Merchandise inventory is included in the numerator.

Which of the following statements are true regarding arithmetic vertical scales? (Choose every correct answer.)

The distance between values shown on the vertical axis will always be uniform. It may be helpful to truncate the non relevant portion of the vertical scale to highlight the key data ranges being depicted.

Which statements correctly describe liquidity?

It is measured by relating current assets and current liabilities as reported on the balance sheet. It is a firm's ability to meet its current obligations as they become due.

Assume that current assets = $300,000 and that current liabilities = $100,000. If an account payable of $50,000 were paid off, what would be the impact on the firm's working capital and current ratio?

Working capital would remain $200,000, but the current ratio would increase from 3.0 to 5.0.

Which statements about margin are correct? (Choose every correct answer.)

It is calculated by dividing net income by sales. It emphasizes that for a firm to be profitable, some portion of every sales dollar must work its way to the bottom line (net income). In the context of the DuPont model of ROI, it refers to the firm's net profit margin, not its gross margin.

an overly high current ratio sometimes can be a sign that the company is not making the most productive use of its assets

true

With a semilogarithmic graph, the _____scale is logarithmic.

vertical

If a company had a current ratio of 2.0 and a short-term bank loan was to be repaid just before the balance sheet date, its Blank______.

working capital would not change, but the current ratio would increase

Which statement about trend analysis is correct?

It generally leads to a more meaningful analysis when conducted over several years than does the observation of a single year's ratio result.

Which of the following statements are true regarding the acid-test ratio? (Choose every correct answer.)

Temporary cash investments are included in the numerator of the acid-test ratio. The acid-test ratio can be calculated as (Cash (including temporary cash investments) + accounts receivable) divided by current liabilities. The acid-test ratio is sometimes called the quick ratio.

Return on investment (ROI) is commonly expressed in each of the following ways, except Blank______.

ROI = Net income / Average stockholders' equity

Which of the following statements are true regarding the current ratio and the acid-test ratio? (Choose every correct answer.) Multiple select question.

The acid-test ratio is a more conservative measure of a firm's liquidity. Both the current ratio and the acid-test ratio use current liabilities as the denominator.