Why is the acid test ratio a more rigorous test of short-term solvency than the current ratio? A. The quick ratio eliminates prepaid expenses for the denominator. B. The quick ratio eliminates prepaid expenses for the numerator. C. The quick ratio eliminates inventories from the numerator. D. The quick ratio considers only cash and marketable investments as current assets. E. The quick ratio eliminates revenue from the numerator.

Why is the acid test ratio a more rigorous test of short-term solvency than the current ratio? A. The quick ratio eliminates prepaid expenses for the denominator. B. The quick ratio eliminates prepaid expenses for the numerator. C. The quick ratio eliminates inventories from the numerator. D. The quick ratio considers only cash and marketable investments as current assets. E. The quick ratio eliminates revenue from the numerator.

Auditing: A Risk Based-Approach (MindTap Course List)

11th Edition

ISBN:9781337619455

Author:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Publisher:Karla M Johnstone, Audrey A. Gramling, Larry E. Rittenberg

Chapter11: Auditing Inventory, Goods And Services, And Accounts Payable: The Acquisition And Payment Cycle

Section: Chapter Questions

Problem 7CYBK

See similar textbooks

Similar questions

Comment on the following statements with suitable example: i. The ratio return on assets has net income in the numerator and total assets in the denominator. Explain how each part of the ratio could cause return on assets to fall. ii. Explain how return on assets could decline, given an increase in net profit margin. iii. If quoted market prices are not available, a personal financial statement cannot be prepared. Comment.
Which of the following is a disadvantage of the average rate of return method? a. fails to consider the time value of money b. includes the amount of income earned over the entire life of the proposal c. emphasizes accounting income d. difficult to use
Which of the following is not true? GAP analysis Ignores changes in the market value of assets and liabilities. GAP analysis Ignores time value of money. GAP analysis is easy to compute and can accurately predicts the exact losses or gains Gap analysis fails to capture non-interest revenue
Too much investment in current assets reduces firm profitability, whereas too little investment in current assets increases the risk of not being able to pay debts as they come due. Explain briefly the statement.
Which of the following is not an advantage of the average rate of return method? a.includes the amount of income earned over the entire life of the proposal b.takes into consideration the time value of money c.emphasizes accounting income d.easy to use
Which of the following statements is false? (You may select more than one answer.)a. The total-cost and incremental-cost approaches to net present value analysis canoccasionally lead to conflicting results.b. The cost of capital is a screening mechanism for net present value analysis.c. The present value of a dollar increases as the time of receipt extends further intothe future.d. The higher the cost of capital, the lower the present value of a dollar received inthe future.
Select the incorrect statement regarding the quick ratio: a) The quick ratio is also known as the acid-test ratio. b) The quick ratio is a conservative variation of the current ratio. c) The quick ratio equals quick assets divided by total liabilities. d) The quick ratio ignores some current assets that are less liquid than others.
I. Explain the tradeoff between the costs of having too much liquidity on the one hand and financial distress and insolvency on the other hand. II. What gives rise to, or causes, each. III. Give an example explaining both.
Which of the following statements is not correct? Group of answer choices A)Purchasing fixed assets using cash decreases the current ratio. B)Accruing a commission expense will affect the net profit margin ratio. C)Increasing the financial leverage ratio guarantees the net profit margin ratio will increase. D)Purchasing treasury stock results in a decrease in the current ratio. E)All of the above are correct
3. Which of the following is not considered a "cost of carry"? 1 Commissions for physical storage. 2 An opportunity cost for the net amount of invested capital. 3 A premium for the convenience of consuming the asset now. 4 A risk premium for uncertainty.
The investment income generated between the time premiums are received and the time claims are paid may result in underwriting risk due to? a. Unexpected decreases in investment yields or returns. b. Unexpected increases in investment yields or returns. c. Unexpected increases in expenses. d. Unexpected decreases in expenses.
Analyze the truth of this statement: Under the cost method of accounting for investments, a dividend received is treated as a reduction in the book value of the investment. Group of answer choices This statement is true. This statement is false. There is not enough information to determine the truth of this statement. There is no such thing as a cost method.