Calculate the quick ratio using the following
information. (Round to two decimal places.)
| Cash | $50,000 |
| Accounts receivable | $130,000 |
| Inventories | $210,000 |
| Prepaid assets | $15,000 |
| Current liabilities | $200,000 |
a.0.98
b.2.50
c.0.90
d.1.35
The ability of a company to pay debts as they become due is best analyzed using:
a.net cash flows from operating activities.
b.accrual accounting.
c.the cash inflows from financing activities.
d.the cash basis of accounting.
Which of the following is true of the accrual basis of accounting?
a.Only individuals and small businesses use the accrual basis of accounting.
b.Under the accrual basis of accounting, a company records only transactions involving increases or decreases of cash.
c.It is designed to avoid misleading information arising from the timing of cash receipts and payments.
d.Under the accrual basis of accounting, revenue is recorded only when cash is received and expenses are recorded only when cash is paid.
Which of the following concepts requires expenses to be recorded in the same period as the related revenues that they generate?
a.The matching concept
b.The monetary unit concept
c.The full disclosure concept
d.The economic entity concept
Which of the following is an example of a cash flow from an investing activity for an insurance company?
a.A cash payment for a claim
b.A cash receipt for a premium
c.Cash paid for the purchase of office equipment
d.A depreciation expense
Although quick ratios vary by industry, a quick ratio of at least _____ is normal.
a.2.0
b.0.8
c.0.5
d.1.0
When an asset is pledged as security for a long-term liability, the obligation may be called:
a.an unsecured loan.
b.deferred credit.
c.a mortgage payable.
d.unearned revenue.
A service provided to a patient but not billed to the insurance company is an example of:
a.a deferred expense.
b.an accrued expense.
c.deferred revenue.
d.accrued revenue.
On November 1, Atlas Inc. paid a premium of $3,600 for a three-year general business insurance policy that covers risks from fire and theft. What amount of insurance will expire each month?
a.$300
b.$150
c.$360
d.$100
Synergy Inc. purchased supplies for $240 on account. How does this transaction affect the financial statements?
a.The statement of cash flows and the income statement are unaffected.
b.The statement of cash flows and the assets side of the balance sheet are unaffected.
c.The income statement and the balance sheet are unaffected.
d.The income statement and the liabilities side of the balance sheet are unaffected.
On December 1, Atlas Inc. paid a premium of $3,600 for a two-year general business insurance policy that covers risks from fire and theft. Which of the following is the effect of this transaction on Atlas's financial statements?
a.There is an increase in cash flows from operating activities in the statement of cash flows.
b.There is an increase in deferred expenses in the income statement.
c.There is a change in the mix of assets in the balance sheet.
d.There is a decrease in cash flows from financing activities in the statement of cash flows.
The updating of the accounting records prior to preparing financial statements as required by accrual accounting is called the:
a.realization process.
b.adjustment process.
c.accounting cycle.
d.analyzing process.
Which of the following is true of the Integrated Financial Statement Framework?
a.The Integrated Financial Statement Framework is more complex than the accounting cycle for a double-entry accounting system.
b.The Integrated Financial Statement Framework is used to focus on the mechanics of recording transactions and preparing financial statements.
c.The Integrated Financial Statement Framework is used to focus more on the effects of transactions on financial statements.
d.When using the Integrated Financial Statement Framework for recording transactions, the balances of the income statement columns carry forward from period to period.
Which of the following is true of the quick ratio of a company?
a.The quick ratio is computed as current assets divided by quick assets.
b.The quick ratio is a better metric than quick assets for comparing among companies.
c.The quick ratio is used to assess the company's ability to generate earnings.
d.The quick ratio is computed as current assets divided by noncurrent liabilities.
Elite Inc. purchased $6,500 of office equipment. It paid $1,250 cash as a down payment, with the remaining $5,250 ($6,500 – $1,250) due in five monthly installments of $1,050 ($5,250 ÷ 5) beginning January 1, 20Y6. Which of the following is the effect of this transaction on the financial statements?
a.There is an increase in cash flows from investing activities by $1,250 in the statement of cash flows.
b.There is an increase in cash flows from operating activities by $1,250 in the statement of cash flows.
c.There are no entries in the income statement.
d.There are no entries in the balance sheet.
The quick ratio is computed as:
a.quick assets divided by current liabilities.
b.current assets divided by noncurrent liabilities.
c.quick assets divided by current assets.
d.quick assets divided by noncurrent liabilities.
As per rules I am answering the first 4 subparts of the question
1: c
Quick ratio=(cash + securities+ accounts receivable)/ current liabilities
= (50000+0+130000)/200000
= 0.9
2: a.net cash flows from operating activities.
Cash flows from operating activities represent the cash generated from the core activities of the business. This indicates the amount of cash available to pay the immediate operating liabilities of the business.
Accrual accounting is a method of accounting by which expenses and revenues are recorded as and when they become due. The cash basis of accounting is that accounting method by which expenses and revenues are recorded when they are paid for. Cash inflows from financing activities are the cash generated from only financing activities of the business.
3: d
Accrual accounting is a method of accounting by which expenses and revenues are recorded as and when they become due. Option a is incorrect because this basis of accounting can be used by any form of organization. Options b and c are incorrect and irrelevant to accrual basis of accounting.
4: a
As per the matching concept, the expenses are recorded in the same period as the revenues to which they relate. The monetary concept states that only monetary transactions are recorded in accounting. As per the full disclosure concept, the management is supposed to disclose all relevant transactions and facts. As per the economic entity concept, the business entity is treated as a separate legal entity from its owners.
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