Which one of the following statements is true?
A)A company's own stock is its most liquid asset.
B)Profits are normally kept in a company's retained earnings until distributed as dividends.
C)Long-term investments will be used to pay current liabilities.
D)Current assets have no physical substance.

Question

Quizplus · Accepted Answer

Profits earned by a company are usually kept in its retained earnings account until distributed as dividends to shareholders. This is because retained earnings are considered a part of a company's equity and are used to support future growth and development. Therefore, this statement is true.

Option A is incorrect as a company's own stock cannot be considered its most liquid asset as it may not be readily convertible to cash.

Option C is incorrect as long-term investments are meant to be held for an extended period of time and not used to pay off current liabilities.

Option D is incorrect as current assets are those assets that are expected to be converted to cash within one year and do have physical substance such as cash, inventory, accounts receivable, etc.

Which One of the Following Statements Is True