Question

Which of the following assets would most likely be considered the least liquid?
A. A U.S. Treasury bill
B. A bond issued by Microsoft
C. A share of common stock in General Electric
D. A share of preferred stock in Wells Fargo.
E. A Durham, North Carolina municipal bond

Which of the following statements is (are) correct?
(x) Fixed assets such as plant and equipment are not part of current assets because they are not very liquid.
(y) Net working capital is defined as current assets minus current liabilities and a positive value for net working capital suggests that the firm has sufficient liquidity to pay current liabilities
(z) Balance sheet assets are listed in order of increasing liquidity as you move down the balance sheet.
A. (x), (y) and (z) B. (x) and (y) only
C. (x) and (z) only D. (y) and (z) only
E. (y) only

Answer 1

ANSWER: B. (X) & (Y) only

X. Correct

Fixed assets does not form part of working capital & take time to dispose to be converted to cash --unlike inventory and trade receivables.

Y.CORRECT- but Not Always

When current assets exceed the current liabilities, in case of need, they can be fully converted to cash to pay-off the current liabilities.

But the composition of current assets also matters , even if their figure exceeds the current liabilities.

ie. If the current assets consist more of prepaid assets (rent, insurance,etc.) and also inventory having obsolete and non-moving items, then positive (current assets -current liabilities) figure may not be enough to meet all the current obligations/liabilities.

z. NOT CORRECT

Balance sheet assets are listed in order of decreasing liquidity as you move down the balance sheet.