Question

Which of the following scenarios would most likely increase financial leverage?

Question 3

A company issues bonds to purchase treasury stock.

A company buys fixed assets with cash.

A company signs an operating lease agreement for a new manufacturing facility.

A company increases its dividend payout, making it in cash on the following payment date.

Question 4:

Bolton Company substantially increased its allowance for bad debt. Which of the following effects will occur?

Question 4 options:

It will reduce the current ratio.

It will increase the acid test ratio.

It will increase working capital.

It will reduce its dividend payout ratio.

Question 5

Which of the following is most likely true concerning the stability and trend of earnings?

Question 5 options:

The stability and trend of earnings require at least five years of historical data to be meaningful.

The stability and trend of earnings are key factors when calculating cost of sales.

The stability and trend of earnings are not factored in the analysis of revenues.

The stability and trend of earnings depend on the trend of a single industry.

Question 6

An accountant accepts a new job as a forecasting analyst at Rhett Company and is exploring different forecasting techniques. Which of the following is most likely true about forecasting models?

Question 6 options:

	The analyst should always consider factors such as cyclicality and seasonality when analyzing the model's results.
	Forecasting models are often based on historical data, which can include moving averages and exponential smoothing techniques.
	Forecasting models with sensitivity analysis features allow the user to evaluate multiple scenarios by changing input variables.
	All of the above statements are true.

Answer 1

Answers : -

3) The company issuing bonds to purchase treasury bills.

The more the debt of the company, the more the financial leverage.

4) It will reduce the current ratio.

Current ratio = Current Assets / Current liabilities. Increasing allowance for bad debts, the accounts payable will decrease which will result in decrease in Current Assets and decrease in Current ratio.

5) The stability and trend of earning require at least five years of historical data to be meaningful.

For stability and trend of earning of an organisation, the historical for previous 5 years data is required to evaluate the company's stability of earning and trend of earning.

6) All of the Bove statements are true.