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CHAPTER 6LIQUIDITY OF SHORT-TERM ASSETS; RELATED DEBT- PAYING ABILITY MULTIPLE CHOICE 1. Company A uses lifo and Company B uses fifo for inventory valuation. Otherwise, the firms are of similar size and have the same revenue and expense. Assume inflation. In analyzing liquidity and profitability of the two firms, which of the following will hold true? a. It is impossible to compare two firms with different inventory methods. b. Company B will have relatively higher profit and higher inventory turnover. c. Company B will have relatively higher profit and lower inventory turnover. d. Company A will have a higher current ratio and acid test ratio, with the same profit. e. Company B will have relatively higher profit and a higher current ratio. ANS: E PTS: 1 2. Which of the following would best indicate that the firm is carrying excess inventory? a. a decline in sales b. a decline in the current ratio c. a decline in days' sales in inventory d. stable current ratio with declining quick ratios e. a rise in total asset turnover ANS: D PTS: 1 3. Which of the following types of businesses would normally have the shortest operating cycle? a. a retail clothing store b. a grocery store c. a wholesale furniture store d. a car manufacturer e. a car dealer ANS: B PTS: 1 4. Jones Company presents the following data for 2006. Receivables, less allowance for losses and discounts of $12,196 $ 266,700 Net Sales $2,360,108 Cost of Goods Sold $1,580,360 The days' sales in receivables is a. 53.1 b. 48.2 c. 43.1 d. 38.1 e. none of the answers are correct ANS: C PTS: 1 6-1 5. Abbott Company presents the following data for 2006. Receivables, end of year, less allowances for losses and discounts of $115,960 $ 2,370,100 Receivables, beginning of year, less allowance for losses and discounts of $102,330 $ 2,443,140 Net Sales $24,417,090 The accounts receivable turnover in times per year is: a. 6.9 b. 7.9 c. 10.7 d. 9.7 e. none of the answers are correct ANS: D PTS: 1 6. Smith Company presents the following data for 2006. Inventories, beginning of year $ 310,150 Inventories, end of year $ 340,469 Cost of Goods Sold $2,103,696 Net Sales $8,690,150 The number of days' sales in inventory is: a. 65.8 b. 60.8 c. 59.1 d. 58.1 e. none of the answers are correct ANS: C PTS: 1 7. Shaffer Company presents the following data for 2006. Net Sales, 2006 $3,007,124 Net Sales, 2005 $ 93,247 Cost of Goods Sold, 2006 $2,000,326 Cost of Goods Sold, 2005 $1,000,120 Inventory, beginning of 2006 $ 341,169 Inventory, end of 2006 $ 376,526 The merchandise inventory turnover for 2006 is: a. 5.6 b. 15.6 c. 7.5 d. 7.7 e. none of the answers are correct ANS: A PTS: 1 6-2 8. Szabo Company computed the following data for 2006.... View Full Document

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