Question 1

If a firm has a current ratio of 2.5,it means that for every $2.50 in _____ it has $1.00 in

Accepted Answer

The current ratio is calculated by dividing current assets by current liabilities, indicating the firm's ability to pay off its short-term liabilities with its short-term assets.

Question 2

Using the following balance sheet information,find the firm's acid-test ratio.
$\begin{array}{|l|r|}
\hline \text { Cash and marketable securities } & \$ 20 \text { million } \
\hline \text { Accounts receivable } & \$ 10 \text { million } \
\hline \text { Inventory } & \$ 30 \text { million } \
\hline \text { Current liabilities } & \$ 30 \text { million } \
\hline
\end{array}$

Accepted Answer

The acid-test ratio is calculated as (Cash and marketable securities + Accounts receivable) / Current liabilities = ($20 million + $10 million) / $30 million = 1.00.

Question 3

A firm has total assets of $50 million and owner's equity of $40 million.What is the firm's debt ratio?

Accepted Answer

The answer of A firm has total assets of $50...

Question 4

Bianca wishes to create a financial blueprint for a future period that reflects such items as expected sales revenues,operating expenses,and cash receipts and disbursements.Bianca wants to create a(n)

Accepted Answer

A budget is a financial plan for a defined period, often one year, that encompasses various financial documents including sales revenues, operating expenses, and cash receipts and disbursements. Bianca's needs align with the creation of a budget, as it is designed to serve as a financial blueprint for future periods, incorporating all the elements she is interested in planning for.

Question 5

If Simone Enterprises has a debt ratio of 40%,it means that for every $1 in _____,the firm has 40 cents in _____.

Accepted Answer

The debt ratio is calculated by dividing a company's total liabilities by its total assets, indicating the proportion of a company's assets that are financed by debt. Therefore, if Simone Enterprises has a debt ratio of 40%, it means that for every $1 in assets, the firm has 40 cents in liabilities.

Question 6

Expenses that have been incurred (such as wages)but have yet to be paid are reported on the balance sheet as

Accepted Answer

Accruals refer to expenses that have been incurred but not yet paid, and they are reported on the balance sheet as liabilities.

Question 7

All of the following are profitability ratios EXCEPT

Accepted Answer

Inventory turnover is a measure of how efficiently a company manages its inventory, indicating how many times a company has sold and replaced inventory over a period. It is considered an efficiency ratio rather than a profitability ratio. Profitability ratios, like return on equity, net profit margin, and gross profit margin, measure a company's ability to generate earnings relative to its revenue, assets, or shareholders' equity.

Question 8

An asset turnover ratio of 2.5 means that for every $1 in assets,the firm generates _____ in sales.

Accepted Answer

The asset turnover ratio is calculated by dividing sales by assets. A ratio of 2.5 means that for every $1 in assets, the firm generates $2.50 in sales.

Question 9

Last year,ABC Tools had a current ratio of 2.0 and an acid-test ratio of 1.0.This year the firm's current ratio is 2.5 and its acid-test ratio is 1.5.ABC's _____ has _____.

Accepted Answer

The current ratio and acid-test ratio are measures of a company's liquidity, not profitability. An increase in both ratios from last year to this year indicates that ABC Tools' ability to cover short-term obligations with its short-term assets has improved.

Question 10

If a company has an acid test ratio of 1.00,$5 million in inventory,and $10 million in current liabilities,what are its total current assets?

Accepted Answer

The acid test ratio is calculated as (Cash + Marketable Securities + Receivables) / Current Liabilities. Given an acid test ratio of 1.00, this means that the company's quick assets (Cash + Marketable Securities + Receivables) equal its current liabilities ($10 million). Since inventory is not included in the acid test ratio and the company has $5 million in inventory, the total current assets would be the sum of quick assets ($10 million) and inventory ($5 million), totaling $15 million.

Question 11

Which of the following is a noncash expense?

Accepted Answer

Depreciation is a noncash expense because it represents the allocation of the cost of a tangible asset over its useful life, without requiring an actual cash outlay during the period it is recorded.

Question 12

Which of the following do companies prepare on a monthly basis?

Accepted Answer

Cash budgets are often prepared on a monthly basis to manage and monitor the company's cash flows, ensuring sufficient liquidity for operations.

Question 13

Ricardo wants to assess his firm's ability to meet its short-term obligations.Which of the following ratios are the most relevant?

Accepted Answer

Liquidity ratios are the most relevant for assessing a firm's ability to meet its short-term obligations, as they measure a company's capacity to pay off its short-term liabilities with its short-term assets.

Question 14

Which of the following is true of Mint.com?

Accepted Answer

Mint.com is an online tool designed for managing personal finances, allowing users to track their spending, create budgets, and set financial goals. It is not specifically designed for tracking a company's cash flows, nor is it a complex system or aimed at promoting worldwide financial reporting consistency.

Question 15

Excel Corporation sells $1,000 worth of goods on July 25 on credit.The customer sends the company a check on August 15.The customer receives the goods on September 1.Assuming the company uses accrual accounting,the sale will be recorded in

Accepted Answer

Under accrual accounting, revenues are recognized when earned, regardless of when the payment is received. Since Excel Corporation sold the goods on July 25, the sale is recorded in July.

Question 16

Which of the following statements is correct?

Accepted Answer

The answer of Which of the following statements is correct?
...

Question 17

Which of the following current assets is NOT included when calculating the acid-test ratio?

Accepted Answer

The acid-test ratio, also known as the quick ratio, measures a company's ability to meet its short-term obligations with its most liquid assets. It excludes inventory from the calculation because inventory is not as easily converted into cash compared to other current assets like marketable securities, cash, and accounts receivable.

Question 18

Amelia asked her accountant to prepare a summary of the company's "bottom line." What specific information is Amelia interested in?

Accepted Answer

The term "bottom line" refers to a company's net income after all expenses, including taxes, have been deducted from revenues. It is a key indicator of the company's profitability.

Question 19

Which ratios are designed to evaluate a firm's ability to generate revenues in excess of operating costs and other expenses?

Accepted Answer

Profitability ratios are specifically designed to assess a firm's ability to generate earnings relative to its revenue, operating costs, and other expenses. These ratios, such as net profit margin, return on assets (ROA), and return on equity (ROE), provide insights into how efficiently a company is generating profit from its operations.

Question 20

Nicole is the Executive Director of a local food bank and is assessing the financial situation of her not-for-profit organization.Nicole uses a(n)_____ to determine whether revenues from contributions and other sources will cover operating costs.

Accepted Answer

An income statement is used to determine if the revenues from contributions and other sources are sufficient to cover operating costs for a specific period. It shows the organization's financial performance, including income and expenses.

Quiz 15: Understanding Accounting and Financial Statements