Question

Ruff Cut had a profit margin of 10.22% in 2020 and 12.37% in 2019. Which of the following statements is consistent with this information?

Multiple Choice

• Ruff Cut's expenses decreased while revenues stayed the same from 2019 to 2020.

• Ruff Cut's expenses decreased while revenues increased from 2019 to 2020.

• Ruff Cut's expenses stayed the same while revenues increased from 2019 to 2020.

• Ruff Cut's expenses increased while revenues stayed the same from 2019 to 2020.

2.  

Indiana Bones & the Temple of Groom had an accounts receivable turnover ratio of 9.62 in 2020 and 7.41 in 2019. Which of the following statements is consistent with this data?

Multiple Choice

• Indiana Bones & the Temple of Groom has been granting more credit to less credit-worthy customers in 2020 than they did in 2019.

• Indiana Bones & the Temple of Groom improved their collection of accounts receivable in 2020 as compared to 2019.

• Indiana Bones & the Temple of Groom has lower sales in 2020 as compared to 2019.

• Indiana Bones & the Temple of Groom reduced the number of days that inventory stays on the shelves in 2020 as compared to 2019.

Answer 1

1. D. Ruff Cut's expenses increased while revenues stayed the same from 2019 to 2020.

Decrease in profit margin in 2020 indicates that the epenses have been increased leading to decrease in profit margin. Also the revenue would have stayed constant, which combined with increasing epenses lead to fall in profit margin.

2. A. Indiana Bones & the Temple of Groom has been granting more credit to less credit-worthy customers in 2020 than they did in 2019.

An increase in accounts recevable turnover implies that the company is providing more time to customer to pay cash in return for the sales made during a partiular period.

Thus the company is not able to quickly convert accounts payable into cash receipts by providing increased time to customer.