Chapter 4 Solutions Essay

3092 Words Feb 17th, 2014 13 Pages
Chapter 04
Analyzing Investing Activities

Multiple Choice Questions 1. Which of the following would rarely be classified as a current asset?
A. Prepaid insurance
B. Goodwill
C. Marketable Securities
D. Work-in-progress 2. Which of the following would not be classified as a current asset?
A. Inventory
B. Accounts payable
C. Accounts receivable
D. Prepaid expenses 3. An asset is considered to be liquid if:
A. it is readily converted into a current asset.
B. it is an intangible asset.
C. it is readily converted into cash.
D. it is part of retained earnings. 4. Analysis of a company's assets will help evaluate its:
I. liquidity.
II. solvency.
III. operational capacity.
IV financing ability.
A.
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Which of the following will achieve this?
A. Encourage customers to pay their bills more quickly.
B. Increase short-term borrowings by $0.1M.
C. Sold building for $0.2M in cash.
D. Liquidate some of its trading marketable securities. 25. LIFO liquidation occurs when:
A. a firm changes from LIFO to another inventory method.
B. a firm experiences an increase in cost of raw materials.
C. the LIFO reserves decline in value.
D. the quantity of goods sold is greater than the quantity produced. 26. If a LIFO liquidation occurs during a period of rising prices, which of the following statements about the effects on a firm's financial statements, all other things equal, is generally true?
I. Cost of goods sold increases.
II. Gross profit margin increases.
III. Taxes decrease.
IV. Net income increases.
A. I only
B. II only
C. I and III only
D. II and IV only 27. Which of the following statements about inventories is true?
A. U.S. generally accepted accounting principles (GAAP) require the use of lower-of-cost or market-valuation basis for inventories.
B. Last-in, last-out (LIFO) inventory accounting makes management of income more difficult than first-in, first-out (FIFO) accounting.
C. During inflation, LIFO inventory accounting tends to overstate the current ratio.
D. FIFO inventory balances generally contain old and outdated costs that have little or no relationship to current costs. 28. A firm has a current ratio

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