QUESTION: 1621

The balance sheet of Firm A shows the following:

Cash & Cash equivalents 432
Receivables 98
Inventories 143
Marketable securities 329
Short-term loans 732
Current portion of long-term debt 210

The quick ratio of the firm equals ________.

0.91
4.09
1.17
0.83

Answer(s): A

Explanation:

The quick ratio is the current ratio calculated using only relatively liquid securities. These current assets are cash, marketable securities and receivables. Thus, Quick ratio = (cash + marketable securities + receivables)/ current liabilities In this case, Quick ratio = (432+98+329)/(732+210) = 0.91

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QUESTION: 1622

Why is book value per share important?

Because it is frequently used in assessing merger terms.
All of these answers.
It is the best method of determining the market value of a firm's common stock.
None of these answers.
Book value per share is the "true" value of a firm's common stock.

Answer(s): A

Explanation:

Book value per share is often times used by firms in determining merger terms. Book value per share plays an important role in the analysis of financial statements since one method of valuation begins with the book value per share figure, to which an estimate of future earnings is added. An estimate of the future profitability of a firm can be based directly on the earnings capacity of its asset base.

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QUESTION: 1623

With respect to depreciation methods, which of the following is true?

Accelerated depreciation methods lead to higher depreciation expense over time.
II. The Straight-line method causes higher taxes in later years.
III. Accelerated methods are preferred for tax reasons.
III only
II & III
I & III
II only

Answer(s): A

Explanation:

Accelerated methods cause depreciation expense to decrease over time. In later years, the straight- line method leads to higher depreciation compared to accelerated methods and hence, leads to lower taxes.

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QUESTION: 1624

Which accounting principle is consistent with reporting financial results that can be compared with previous periods?

adequate disclosure
matching
consistency
materiality

Answer(s): C

Explanation:

The consistency principle requires that an accounting procedure, once adopted by a company, remain in use from one period to the next unless users are informed of the change.

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QUESTION: 1624

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