1) Which of the following companies is in better position to pay its short-term debt? *

 

 

a. Company A

b. Company B

c. Company C

 

2. If XYZ Company Acid-test ratio is computed as 1.7. Which statement interprets the acid-test ratio of XYZ company 

a. For every dollar of XYZ Company's current liabilities, the company has $1.70 of very liquid assets to cover its immediate obligations

b. For every dollar of XYZ Company's current asset, the company has $1.70 of very liquid assets to cover its immediate obligations

c. For every dollar of XYZ Company's total asset, the company has $1.70 of very liquid assets to cover its immediate obligations

d. For every dollar of XYZ Company's total liabilities, the company has $1.70 of very liquid assets to cover its immediate obligations

 

3. What could be the interpretation of the average collection period between Boswell Inc. and Kimye Inc. *

 

 

a. Boswell's receivables are slightly more liquid than Kimye's receivables

b. Kimye's receivables are slightly more liquid than Boswell's receivables

 

4. The Intra-company basis compares data ______ that are often useful to detect changes in financial relationships and significant trends. *

a. within a company

b. with other company

c. with industry averages

d. with economic environment

 

5. For common-size statement of comprehensive income , _______________ is set 100%

a. Net Sales

b. Gross Profit

c. Net Income

d. Total Asset

1. C

2. A

3. A

4. A

5. A

Step-by-step explanation

1. C. Company C 

Among the three companies, Company C is in better position to pay it's short term debt. 

The best financial ratio to be used in determining which company is in better position to pay it's short term debt is the current ratio. This ratio measure the company's ability to pay it's short term debt. To interpret this, the higher the current ratio, the better. 

Therefore, since company has the highest current ratio of 2.22, this means company C is in better position as compared to company A and B. 

2. A. For every dollar of XYZ Company's current liabilities, the company has $1.70 of very liquid assets to cover its immediate obligations. 

Among all of the choices given, letter A is the best answer. 

Acid-test ratio is calculated by dividing the quick assets by the current liabilities. Quick Asset refers to the very liquid assets such as cash, receivable and marketable securities. Inventories are not considered as quick asset. 

The interpretation of this, is that the higher the ratio, the better. This also means for every dollar of the company's current liabilities, the company has $1.70 of it's quick assets or very liquid assets to pay it. 

Therefore, answer to the question above is A.

3. A. Boswell's receivables are slightly more liquid than Kimye Inc.'s receivables. 

Among the choices given, letter A is the correct answer. 

Average collection period refers to the length of time the receivables of the company are collected. To interpret this, the shorter the days/time of the collection period, the better. 

In this case, the answer to the question above is A. 

4. A. Within a company.

Among all of the choices given, letter A is the correct answer.

The Intra-company basis compares data within a company that are often useful to detect changes in financial relationships and significant trends.

5. A. Net sales 

Among all of the choices given, letter A is the correct answer. 

In a common-sized financial statements particularly the statement of comprehensive income, the net sales represents the 100%. For the statement of financial position, total assets represents 100%. 

Therefore, answer to the question above is A. Net sales.