Multiple Choice Questions
1.Current assets are assets which
a. can be used immediately to retire liabilities.
b. are newly acquired.
c. have been converted into cash in the previous year.
d. are intended to be converted into cash within one year.
2.A company’s operating cycle may be described as
a. the period of time that is typically required for a company to convert cash into inventory and inventory into cash.
b. the period of time from the beginning of operations until a company liquidates all of its assets.
c. always a one-year time period.
d. a cycle that is distinguished at the discretion of the Board of Directors on a daily basis.
3.Cash may consist of
a. coin and currency, loans to employees, and money orders.
b. petty cash, officer imprest accounts, and employee savings accounts.
c. money orders, postage stamps, and currency.
d. checking accounts, savings accounts, and bank drafts.
4.A compensating balance is
a. cash held by a foreign government.
b. a balance maintained by the company to pay the employees’ payroll.
c. a minimum cash balance that must be maintained on deposit.
d.items which are not cash, but equivalent to cash.
5.Which of the following are components of the quick ratio?
a.Cash and notes payable
b.Cash and accounts receivable
c.Accounts receivable and inventory
d.All current assets except accounts receivable
6.Which of the following are components of the current ratio?
a. Accounts receivable and short term investments
b. Inventory, retained earnings, and accounts payable
c. Accounts payable, dividends, and cash
d. Short term investments, equipment, and land
7.‘Earnings management’ is described as deliberate managerial decisions and choices that are solely designed to
a. increase selling prices of a company’s products.
b. reduce repair costs on the company’s equipment.
c. manipulate net income from one period to the next to boost the company’s stock price.
d. increase working capital.
8.If a company with a current ratio of 2.0 pays $2,000 of its salaries payable, then its current ratio will
a. change, but not enough information is provided to determine if it will increase or decrease.
b. decrease.
c. remain the same.
d.increase.
9.On August 1, Compass Co. made a $10,000 credit sale under the terms 2/10, n/30. If Compass receives full payment of the account on August8, how much cash will it receive?
a. $9,700
b. $9,800
c. $9,000
d. $10,000
10.If a company with working capital of $210,000 pays $4,000 of bonds payable, then its working capital will
a. increase.
b. decrease.
c. remain the same.
d.Not enough information to determine