Question 1

A company has $8,000 in cash, $9,250 in accounts receivable, and $19,500 in inventory. If current liabilities are $14,350, then the quick ratio will be

Accepted Answer

The quick ratio is calculated as (Cash + Accounts Receivable) / Current Liabilities. So, it's ($8,000 + $9,250) / $14,350 = $17,250 / $14,350 = 1.2.

Question 2

A company has property, plant, and equipment of $500,000, current liabilities of $70,000, and long-term liabilities are $300,000. If the company's current ratio is 3.0, what are current assets?

Accepted Answer

The answer of A company has property, plant, and equipment...

Question 3

If a business has current assets of $62,000, total assets of $350,000, current liabilities of $31,000, and total liabilities of $125,000, then its current ratio will be

Accepted Answer

The current ratio is calculated by dividing current assets by current liabilities. In this case, it is $62,000 / $31,000 = 2.0.

Question 4

Assume a company has a current ratio of 0.75. The purchase of inventory on account would cause the current ratio to

Accepted Answer

Purchasing inventory on account increases both current assets (inventory) and current liabilities (accounts payable) equally. Since the current ratio is below 1, this action increases the numerator more in proportion to the increase in the denominator, thus increasing the current ratio.

Question 5

A company has long-term assets of $2,000, current liabilities of $1,250, and long-term liabilities of $1,500. If the current ratio is 2.5, then current assets must be

Accepted Answer

The current ratio is calculated by dividing current assets by current liabilities. We are given that the current ratio is 2.5, therefore:
Current ratio = Current assets / Current liabilities
2.5 = Current assets / 1,250
Current assets = 2.5 x 1,250
Current assets = $3,125

Question 6

Assume that a company has a cash ratio of .45. Recording the estimated warranties expense on the period's sales would cause the cash ratio to

Accepted Answer

Recording the estimated warranties expense on the period's sales would decrease the company's cash balance, thereby decreasing the cash ratio. Since the estimated warranties expense is a liability account, it would reduce the amount of cash available in the current assets to pay off the current liabilities.

Question 7

Which of the following statements about current liabilities is true?

Accepted Answer

Current liabilities are included in the current ratio calculation, which compares a company's current assets to its current liabilities to measure its ability to meet short-term obligations. The other statements are false. Current liabilities are listed in order of maturity, not amount, and their amount is a significant factor in measuring a company's liquidity. The current liability section of a classified balance sheet may include portions of long-term liabilities that are due within the next year, such as the current portion of a long-term debt.

Question 8

A landlord records the collection of a tenant's security deposit as a(n)

Accepted Answer

A security deposit is collected to protect the landlord from any damages or unpaid rents that the tenant may cause. It is considered a liability because the landlord owes the tenant the return of the security deposit at the end of the lease term, assuming all lease obligations have been fulfilled.

Question 9

GT Company has $200 in cash, $500 in accounts receivable, and $700 in inventory. The company also has $200 in accounts payable and $200 in unearned sales revenue. What is the company's quick ratio?

Accepted Answer

Quick Ratio = (Cash + Accounts Receivable) / Current Liabilities
Quick Ratio = ($200 + $500) / ($200 + $200)
Quick Ratio = $700 / $400
Quick Ratio = 1.75

Question 10

Go Cars has $200 in cash, $500 in accounts receivable, $400 in marketable securities, and $700 in inventory. Assuming the company also has $200 in accounts payable and $200 in unearned sales revenue, what is its cash ratio?

Accepted Answer

The cash ratio is calculated as (Cash + Marketable Securities) / Current Liabilities. Here, it's ($200 + $400) / ($200 + $200) = $600 / $400 = 1.50.

Question 11

A company has current assets of $4,400, current liabilities of $2,750, and long-term liabilities of $5,500. If the operating cash flow ratio is 1.5, then cash flows from operating activities must be

Accepted Answer

The operating cash flow ratio is calculated by dividing cash flows from operating activities by current liabilities. Given the operating cash flow ratio is 1.5, we can find the cash flows from operating activities by multiplying the current liabilities ($2,750) by the ratio (1.5), which equals $4,125.

Question 12

A company has cash of $800, current liabilities of $500, and long-term liabilities of $600. If the cash ratio is 2.5, then marketable securities must be

Accepted Answer

The cash ratio is calculated by dividing cash and marketable securities by current liabilities. We know that the cash ratio is 2.5, and we are given that the company has $800 in cash and $500 in current liabilities.

Cash ratio = (cash + marketable securities) / current liabilities
2.5 = ($800 + MS) / $500
MS = $450

Therefore, the marketable securities must be $450.

Question 13

Assume that a company has an operating cash flow ratio of 0.75. Payment of accrued wages payable would cause the operating cash flow ratio to

Accepted Answer

The operating cash flow ratio is calculated by dividing operating cash flow by current liabilities. Accrued wages payable is a current liability, and paying it would decrease the amount of current liabilities. Since the denominator of the ratio would decrease while the numerator remained the same, the result would be a decrease in the operating cash flow ratio. Therefore, the correct answer is A) decrease.

Question 14

A company has total assets of $350,000 consisting of current assets of $115,000, property, plant, and equipment of $200,000, and other assets of $35,000. The company has total liabilities of $100,000 consisting of current liabilities of $65,000 and other liabilities of $35,000. What is the current ratio?

Accepted Answer

The answer of A company has total assets of $350,000...

Question 15

Giff Services Company experienced some difficulties with cash flow so it approached one of its vendors about a payment extension. The vendor agreed to the extension on the condition that the company sign a note that includes 9% interest. What is the impact on the accounting equation of recording a note payable in exchange for the account payable?

Accepted Answer

Recording a note payable in exchange for an account payable swaps one liability (accounts payable) for another (notes payable), without affecting the total amount of liabilities or assets, hence no net impact on the accounting equation.

Question 16

The payment of Accounts Payable results in a(n)

Accepted Answer

Paying off accounts payable decreases liabilities (because you're reducing what you owe) and also decreases assets (because you're using cash or other assets to make the payment).

Question 17

GTO Division has $14,000 in current assets, $2,000 in accounts payable, and $2,000 in unearned sales revenue. What is the division's current ratio?

Accepted Answer

The answer of GTO Division has $14,000 in current assets,...

Question 18

GTX Corp. has $100,000 in cash, $40,000 in inventory, $25,000 in accounts payable and $15,000 in accrued liabilities (salaries, interest, taxes, etc.). If the company has $280,000 in cash flows from operating activities, what is its operating cash flow ratio?

Accepted Answer

The answer of GTX Corp. has $100,000 in cash, $40,000...

Question 19

Assume a company has a current ratio of 2. Payment of accrued wages payable would cause the current ratio to

Accepted Answer

Payment of accrued wages payable decreases current liabilities, which increases the current ratio, assuming current assets remain unchanged.

Question 20

Assume that a company has a current ratio of 3. Failure to record estimated warranty costs will cause the current ratio to be

Accepted Answer

Failure to record estimated warranty costs results in an understatement of current liabilities, leading to an overstated current ratio. The current ratio is calculated as current assets divided by current liabilities; thus, if liabilities are understated, the ratio will appear higher than it should be.

Quiz 8: Current and Contingent Liabilities