56.The current ratio:
A. Is computed by dividing current assets by current liabilities.
B. Is computed by subtracting current liabilities from current assets.
C. Remains unchanged throughout the operating cycle.
D. Is a measure of short-term profitability.
57.How would a company's working capital be affected if a substantial amount of accounts payable were paid in cash?
A. It would be unaffected.
B. It would fall.
C. It would increase.
D. The change would depend on the relationship between the payables liquidated and current liabilities.
58.Current assets are those assets that can be converted into cash within:
A. One year and never longer.
B. One year or the operating cycle, whichever is longer.
C. One year or the operating cycle, whichever is shorter.
D. Management's discretion.
59.Working capital is calculated by:
A. Dividing current assets by total assets.
B. Dividing current assets by total liabilities.
C. Subtracting current liabilities from total assets.
D. Subtracting current liabilities from current assets.
60.The quick ratio:
A. Is computed by dividing current assets by current liabilities.
B. Is always higher than the current ratio.
C. Cannot be higher than the current ratio.
D. May be higher or lower than the current ratio.
61.Short-term creditors are most likely to use the quick ratio instead of the current ratio in evaluating the solvency of a company with large, slow-moving:
A. Plant and equipment.
B. Receivables.
C. Inventories.
D. Employees.
62.Which of the following is considered a quick asset?
A. Accounts receivable.
B. Inventory.
C. Automobiles.
D. Prepaid expenses.
63.Which of the following transactions would cause a change in the amount of a company's working capital?
A. Collection of an account receivable.
B. Payment of an account payable.
C. Borrowing cash over a 60-day period.
D. Selling merchandise at a price above its cost.
64.The debt ratio indicates the percentage of:
A. Total assets financed by long-term mortgages.
B. Revenue consumed by interest expense.
C. Total assets financed by creditors.
D. Total liabilities classified as current.
65.The debt ratio is used primarily as a measure of:
A. Short-term liquidity.
B. Creditors' long-term risk.
C. Profitability.
D. Return on Investment.