Working Capital and Liquidity(Quick Test #1)

1. Working capital is defined as current assets __________ liabilities.

2. The calculation of working capital uses amounts from which of the following financial statements?

3. For most companies which of the following is the longer period of time?

4. A company’s balance sheet should report a company’s current assets in which order?

5. A company has a current ratio of 3:1 and a quick ratio of 1:1. The difference is likely attributed to which of the following?

6. Which of the following will result in an increase in the quick ratio?

7. Which of the following will cause a company’s working capital to decrease?

8. What will be the effect on the total amount of working capital when a company collects one of its accounts receivable?

9. When a company sells its products to a customer on credit, the company will become one of the customer’s __________.

10. When calculating the inventory turnover ratio, which of the following should be divided by the average amount of inventory?

11. Which of the following should be used to compute the receivables turnover ratio?

12. A company’s net credit sales for the year were $1,500,000. During the year the accounts receivable increased steadily from $100,000 at the beginning of the year to $150,000 at the end of the year. What is the accounts receivable turnover ratio for the year?

13. If a company’s accounts receivable turnover ratio was 10, what was its average collection period?

14. A retailer had sales for the year of $750,000 with a cost of goods sold of $600,000. During the year its inventory rose at a constant rate moving from $140,000 at the beginning of the year to $160,000 at the end of the year. What was the retailer’s inventory turnover ratio for the year?

15. The combination of the average collection period and the days’ sales in inventory is the company’s __________.

16. The aging of accounts receivable sorts a company’s unpaid __________ according to the date that the customer should pay the company.

17. Credit terms of 2/10, net 30 result in an approximate annual interest rate of __________.

18. On December 31, a company using the accrual method of accounting required an emergency repair to its plumbing system. The company used its business credit card on December 31 to pay the contractor’s $2,000 fee. The company will receive its credit card statement on January 15 and will pay the credit card company on February 3. On which date does the company’s working capital decrease?

19. A company’s operating cash flow ratio is the net cash provided by operating activities for a recent year divided by the average balance of its __________ during the year.

20. On a typical statement of cash flows, should the amount of an increase in inventory appear as a positive or negative amount?

21. Will the amount of an increase in the balance in accounts payable during the recent accounting year appear on the statement of cash flows as a positive or negative adjustment to net income?

22. A company had current assets of $120,000 and current liabilities of $100,000 before making a $20,000 payment to reduce the amount owed to one of its vendors. What will be the current ratio after the $20,000 cash payment?

23. If a company’s days sales in inventory during the most recent year was 60 days, what was the company’s inventory turnover ratio?

24. Deferred Revenues is likely to be which type of account?

25. If a U.S corporation’s shares of stock are traded on a stock exchange, which report will contain management’s discussion of the corporation’s liquidity?