If a company converted a short-term note payable into a long-term note payable, this transaction would
Answer(s): D
This transaction reduces current liabilities, but does not change current assets and, therefore, increases working capital and increases the current ratio.
A firm needs to purchase 20 warehouses in various states. To finance the purchases, it issues new shares in a seasoned equity offering. It also issues high coupon bonds on which interest must be paid semi-annually. If the firm purchases the warehouses at the beginning of the year, which of the cash flows will be affected in the year- end statements?Investing Operating Financing
Answer(s): A
The purchase of the warehouses affects the investing cash flows. The bonds and equity offering affect the financing cash flows. These transactions do not affect operating cash flow immediately. The interest payments on the issued debt, however, will affect it. In addition, the dividends paid on the new equity will affect financing cash flows.
The __________ is the most conservative of the following liquidity ratios.
Answer(s): C
The cash ratio is the most conservative of the 3 liquidity ratios since it considers only cash and marketable securities relative to the current liabilities.
The promulgation of GAAP is a responsibility that rests with:
The SEC has the primary responsibility for creation of accounting standards in the US. The AAA does issue its own statements about accounting standards and these are quite influential in shaping the official framework.However, its statements are not binding on the industry unless the SEC adopts them.Currently, the SEC has relegated most of the duties of addressing needs for various accounting standards to the Financial Accounting Standards Board (FASB), though it remains the final authority in these matters.
A firm had retained earnings of $100,000 at the beginning of the year. During the year, the firm had a net income of $55,000 and paid dividends worth $20,000. Then, the change in the firm's retained earnings equals ________.
Answer(s): B
Ending retained earnings = Beginning retained earnings + Net Income - Dividends paid. Hence, change in retained earnings = $55,000-$20,000 = $35,000.
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