Question

1. Which of the following best describes the current ratio?
A. Debt ratio
B. Operating performance ratio
C. Liquidity ratio
D. Efficiency ratio
2. Which of the following is not likely to be used to measure a company's liquidity?
A. Working capital
B. Financial leverage
C. Current ratio
D. Acid-test (quick) ratio
3. Which of the following industries would you expect to have the longest operating cycle?
A. Fast food industry
B. Aerospace industry
C. Discount retail store industry
D. Utility industry
4. Which of the following is not likely to be the cause of a company's low accounts receivable turnover?
A. Poor collection efforts
B. Low price of product
C. Customers in financial distress
D. Delays in customer payments
5. Which of the following industries would you expect to have the highest inventory turnover?
A. Restaurant
B. Car dealer
C. Jewelry store
D. Department store
6. Trading marketable securities:
A. are considered noncurrent assets.
B. are recorded at amortized cost.
C. are marked to the lower of cost or market each accounting period.
D. are marked to market each accounting period.7. The classification of marketable equity securities as trading or available-for-sale is determined:
A. by management's intent regarding the disposition of the securities
B. when the securities mature.
C. whether the current assets are greater or less than the current liabilities.
D. whether management wants to mark them to market or not.
8. The equity method of accounting for investments requires:
A. investment should be marked to market each accounting period.
B. proportionate share of investee's earnings should be recorded as investment income.
C. company should not have significant influence over investee.
D. goodwill related to purchase of investee stock to be recorded separately on balance sheet.
9. Agwen Corporation owns 25% of the shares of Bronwo Corporation, which is traded on the New York Stock Exchange. Which method is Agwen most likely to use to account for this investment?
A. Cost method
B. Market method
C. Equity method
D. Consolidation method
10. Cash flows from operating activities include all of the following except:  
A. Collections from customers for sales of goods B. Interest and dividends received
C. Payments of interest
D. Payments of dividends

Answer 1

1) The answer is C- liquidity ratio.

Liquidity is a relative measure of the proximity of current assets and current liabilities to cash and is an indication of company's ability to meet short-term obligation. Since most of the liabilities of a company are paid in cash, a good measure of this ability is how rapidly a company can convert its other assets into cash, if the need arises.

Cash ratio measures the degree to which current assets cover current liabilities. A higher ratio indicates greater ability to pay current liabilities with current assets, thus greater liquidity.

2) The answer is B- Financial leverage

All other options are liquidity ratios and financial leverage is a solvency ratio. Financial leverahe is the use of dept to increase returns to owners.