Question 1

Use the following information for questions.
Nelly Inc. reported net credit sales of $24,000,000 and cost of goods sold of $18,000,000 for the year. The average inventory for the year was $6,000,000.
-Best Baskets Limited (BBL) had a current ratio of 0.8:1 before borrowing $50,000 from the bank with a short-term note payable. What effect did the borrowing transaction have on BBL's current ratio?

Accepted Answer

The borrowing transaction increased BBL's current assets (cash) by $50,000 and increased its current liabilities (short-term note payable) by $50,000. Therefore, the current ratio increased.

Question 2

A high receivables turnover ratio may indicate that

Accepted Answer

A high receivables turnover ratio suggests that customers are making payments quickly, as it indicates that the company is efficiently collecting its receivables.

Question 3

Use the following information for questions.
Nelly Inc. reported net credit sales of $24,000,000 and cost of goods sold of $18,000,000 for the year. The average inventory for the year was $6,000,000.
-Some of the ratios that are used to determine a company's short-term debt paying ability are

Accepted Answer

The current ratio, receivables turnover, and inventory turnover are key ratios used to assess a company's short-term debt-paying ability. These ratios help evaluate liquidity and efficiency in managing assets.

Question 4

Use the following information for questions.
Nelly Inc. reported net credit sales of $24,000,000 and cost of goods sold of $18,000,000 for the year. The average inventory for the year was $6,000,000.
-A supplier to a company would be most interested in the

Accepted Answer

A supplier would be most interested in the current ratio as it indicates the company's ability to pay short-term obligations, which is crucial for assessing the likelihood of timely payments for supplies.

Question 5

Use the following information for questions.
Nelly Inc. reported net credit sales of $24,000,000 and cost of goods sold of $18,000,000 for the year. The average inventory for the year was $6,000,000.
-If a company has a current ratio of 1.3:1, what effects will the borrowing of cash by short-term debt and collection of accounts receivable have on the ratio?

Accepted Answer

The answer of Use the following information for questions.
Nelly Inc....

Question 6

Use the following information for questions.
Nelly Inc. reported net credit sales of $24,000,000 and cost of goods sold of $18,000,000 for the year. The average inventory for the year was $6,000,000.
-The days in inventory during the year was

Accepted Answer

Days in inventory is calculated as (Average Inventory / Cost of Goods Sold) * 365. For Nelly Inc., it is ($6,000,000 / $18,000,000) * 365 = 122 days.

Question 7

The current ratio is

Accepted Answer

The current ratio is a liquidity ratio that measures a company's ability to pay short-term obligations. It is calculated by dividing current assets by current liabilities. A higher current ratio indicates a company has better short-term debt-paying ability or liquidity. Therefore, option B is the best choice as it correctly defines the current ratio and its use to evaluate a company's short-term debt paying ability. The rest of the options are incorrect definitions or calculations of the current ratio.

Question 8

Use the following information for questions.
Nelly Inc. reported net credit sales of $24,000,000 and cost of goods sold of $18,000,000 for the year. The average inventory for the year was $6,000,000.
-A weakness of the current ratio is

Accepted Answer

The weakness of the current ratio is that it does not take into account the composition of the current assets, which can be misleading as it assumes that all current assets can be easily converted to cash.

Question 9

A common measure of liquidity is

Accepted Answer

Receivables turnover is a measure of how efficiently a company collects its accounts receivable, which is a key aspect of liquidity.

Question 10

Horizontal analysis

Accepted Answer

Horizontal analysis is also known as trend analysis, as it involves comparing financial data over multiple periods to identify trends and patterns.

Question 11

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Nelly Inc. reported net credit sales of $24,000,000 and cost of goods sold of $18,000,000 for the year. The average inventory for the year was $6,000,000.
-Which one of the following would not be considered a liquidity ratio?

Accepted Answer

Return on assets ratio is a profitability ratio, not a liquidity ratio. Liquidity ratios measure a company's ability to meet its short-term obligations, while return on assets measures how efficiently a company uses its assets to generate profit.

Question 12

The current ratio is a

Accepted Answer

The current ratio is a liquidity ratio that measures a company's ability to pay short-term obligations with its current assets.

Question 13

An inventory turnover ratio

Accepted Answer

The inventory turnover ratio measures how many times a company's inventory is sold and replaced over a period, indicating the efficiency of inventory management.

Question 14

A company with $60,000 in current assets and $40,000 in current liabilities pays a $1,000 current liability. As a result of this transaction, the current ratio and working capital will

Accepted Answer

The answer of A company with $60,000 in current assets...

Question 15

Handles Corp. reported net credit sales of $6,500,000 and cost of goods sold of $3,400,000 for the year. The Accounts Receivable balances at the beginning and end of the year were $525,000 and $575,000, respectively. The receivables turnover ratio was

Accepted Answer

The receivables turnover ratio is calculated by dividing net credit sales by the average accounts receivable. The average accounts receivable is calculated by adding the beginning and ending accounts receivable balances and dividing by 2. In this case, the average accounts receivable is ($525,000 + $575,000) / 2 = $550,000. The receivables turnover ratio is therefore $6,500,000 / $550,000 = 11.8 times.

Question 16

Short-term creditors are usually most interested in assessing

Accepted Answer

Short-term creditors are concerned with the ability of a company to meet its short-term obligations, therefore they focus on assessing liquidity, or the company's ability to generate enough cash to pay off its current liabilities. Solvency, marketability, and profitability are more relevant to long-term creditors and investors.

Question 17

The receivables turnover and inventory turnover ratios are used to analyze

Accepted Answer

These ratios measure how efficiently a company converts its receivables and inventory into cash, which is a key aspect of liquidity.

Question 18

Use the following information for questions.
Nelly Inc. reported net credit sales of $24,000,000 and cost of goods sold of $18,000,000 for the year. The average inventory for the year was $6,000,000.
-A liquidity ratio measures the

Accepted Answer

Liquidity ratios assess a company's ability to cover its short-term liabilities with its short-term assets, indicating its capacity to meet immediate financial obligations.

Question 19

Afrikana Inc. had a balance in the Accounts Receivable account of $820,000 at the beginning of the year and a balance of $880,000 at the end of the year. Net credit sales during the year were $5,920,000. The average collection period of the receivables was

Accepted Answer

The answer of Afrikana Inc. had a balance in the...

Question 20

Use the following information for questions.
Nelly Inc. reported net credit sales of $24,000,000 and cost of goods sold of $18,000,000 for the year. The average inventory for the year was $6,000,000.
-The inventory turnover ratio for the year was

Accepted Answer

Inventory turnover ratio = Net credit sales / Average inventory= $24,000,000 / $6,000,000= 4.0 times

Quiz 14: Performance Measurement

A high receivables turnover ratio may indicate that

Use the following information for questions. Nelly Inc. reported net credit sales of $24,000,000 and cost of goods sold of $18,000,000 for the year. The average inventory for the year was $6,000,000. -Some of the ratios that are used to determine a company's short-term debt paying ability are

Use the following information for questions. Nelly Inc. reported net credit sales of $24,000,000 and cost of goods sold of $18,000,000 for the year. The average inventory for the year was $6,000,000. -A supplier to a company would be most interested in the

Use the following information for questions. Nelly Inc. reported net credit sales of $24,000,000 and cost of goods sold of $18,000,000 for the year. The average inventory for the year was $6,000,000. -The days in inventory during the year was