Question 1

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
A)decrease.
B)increase.
C)be unchanged since the effects offset one another.
D)be unchanged since it has no impact on any current liability or operating cash flow accounts.

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 2

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?
A)1.75
B)2.25
C)3.00
D)3.50

Accepted Answer

The answer of GTO Division has $14,000 in current assets,$2,000...

Question 3

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
A)5.0
B)2.6
C)2.0
D)1.2

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 4

Assume a company has a current ratio of .75.The purchase of inventory on account would cause the current ratio to
A)decrease.
B)increase.
C)be unchanged since the effects offset one another.
D)be unchanged since it has no impact on any current asset or liability accounts.

Accepted Answer

The answer of Assume a company has a current ratio...

Question 5

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?
A)Both assets and liabilities increase.
B)Both assets and liabilities decrease.
C)Liabilities increase and stockholders' equity decreases.
D)There is no net impact,as there are corresponding increases and decreases in liability accounts.

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 6

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?
A)1.75
B)2.25
C)3.00
D)3.50

Accepted Answer

The quick ratio (or acid-test ratio) is calculated by adding up cash, accounts receivable, and any marketable securities, then dividing that sum by current liabilities (accounts payable and any other debts that need to be paid within the next 12 months). The quick ratio excludes inventory and prepaid expenses because they may be hard to convert into cash quickly.

In this case, GT Company's quick assets (cash + accounts receivable) are $700 ($200 + $500) and their current liabilities (accounts payable + unearned sales revenue) are also $400 ($200 + $200). Dividing $700 by $400 gives us a quick ratio of 1.75. Therefore, the best choice is A.

Question 7

Assume a company has a current ratio of 2.Payment of accrued wages payable would cause the current ratio to
A)decrease.
B)increase.
C)be unchanged since the effects offset one another.
D)be unchanged since it has no impact on any current asset or liability accounts.

Accepted Answer

The answer of Assume a company has a current ratio...

Question 8

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
A)$5,000
B)$3,125
C)$1,563
D)$500

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 9

A company has cash of $800,current liabilities of $500,and long-term liabilities of $600.If the cash ratio is 2.5,then marketable securities must be
A)$ 700
B)$ 800
C)$ 450
D)$2,000

Accepted Answer

Cash ratio = cash / current liabilities
2.5 = 800 / 500
So, current assets (cash + marketable securities) = 2.5 * current liabilities
Current assets - cash = marketable securities
(2.5 * 500) - 800 = 450

Therefore, the marketable securities must be $450.

Question 10

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?
A)0.5
B)2.0
C)7.0
D)3.5

Accepted Answer

The answer of GTX Corp.has $100,000 in cash,$40,000 in inventory,$25,000...

Question 11

Which of the following statements about current liabilities is true?
A)Current liabilities are listed in order of decreasing amounts in the current liability section of a classified balance sheet.
B)The amount of current liabilities has little implication for a company's liquidity.
C)Current liabilities are the denominator in the formula for the current ratio.
D)The current liabilities section of a classified balance sheet will never contain any portion of long-term liabilities.

Accepted Answer

Current liabilities are the numerator of the current ratio formula, while current assets are the denominator. The other statements are false. Current liabilities are listed in order of increasing maturity dates, not decreasing amounts, in the current liability section of a classified balance sheet. The amount of current liabilities is a key factor in determining a company's liquidity. Lastly, the current liabilities section can contain portions of long-term liabilities that are due within the next year, such as the current portion of long-term debt.

Question 12

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
A)$4,125
B)$6,600
C)$8,250
D)$12,375

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 13

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?
A)3.50
B)1.15
C)1.77
D)5.38

Accepted Answer

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

Question 14

The payment of Accounts Payable results in a(n)
A)decrease in both liabilities and assets.
B)decrease in liabilities and increase in assets.
C)decrease in liabilities and increase in stockholders' equity.
D)increase in liabilities and decrease in stockholders' equity.

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 15

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
A)0.5
B)2.0
C)2.8
D)3.0

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 16

A landlord records the collection of a tenant's security deposit as a(n)
A)prepaid expense
B)liability
C)contingent liability
D)contra liability

Accepted Answer

The collection of a tenant's security deposit is recorded as a liability because the landlord has an obligation to return the deposit to the tenant at the end of the lease term. It is not a prepaid expense because the landlord cannot use the deposit for his/her own expenses. It is not a contingent liability either because it is a probable and measurable obligation. It is not a contra liability because it does not offset any other liability account.

Question 17

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?
A)4.50
B)3.00
C)2.75
D)1.50

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 18

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
A)decrease.
B)increase.
C)be unchanged since the effects offset one another.
D)be unchanged since it has no impact on any current asset or liability accounts.

Accepted Answer

Recording the estimated warranties expense on the period's sales would decrease the cash balance, which would decrease the cash ratio.

Question 19

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?
A)$900,000
B)$690,000
C)$430,000
D)$210,000

Accepted Answer

The answer of A company has property,plant,and equipment of $500,000,current...

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
A)overstated.
B)understated.
C)unchanged since the effects offset one another.
D)unchanged since it has no impact on any current asset or liability accounts.

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

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

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?

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

Assume a company has a current ratio of .75.The purchase of inventory on account would cause the current ratio to

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?

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

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

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

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?

Which of the following statements about current liabilities is true?

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

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?

The payment of Accounts Payable results in a(n)

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

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

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?

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

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?

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