Acquiring land by taking out a long-term mortgage will not affect the current ra

Question

Acquiring land by taking out a long-term mortgage will not affect the current ratio.

True

False

Purchasing marketable securities with cash will have no effect on a company's acid-test ratio.

True

False

When fixed costs are included in the cost of goods sold, the gross margin percentage should increase and decrease with sales volume.

True

False

The formula for the average sale period is: Average sale period = Accounts receivable turnover ÷ Inventory turnover.

True

False

The formula for total asset turnover is: Total asset turnover = Total assets ÷ Total stockholders’ equity.

True

False

As the accounts receivable turnover ratio decreases, the average collection period increases.

True

False

Explanation / Answer

Answer for 1)

True.

Quickratio have affect if and only if the current assets or current liability change.Here land is a fixed asset and long term mortgage is not current liability.

Answer for 2)

True.

Here,by purchase of marketable securities will increase one current asset and cash payment will decrease one current asset.

Answer for 3)

True.

Fixed costs doesn't change with change in output.Here when fixed costs included in cost of goods sold the gross profit margin increases with increase in sale and decrease with decrease in sale.

Answer for 4)

False.

Formulae for average sales paid :

365 days/inventory turnover ratio

Answer for 5)

False.

Total assets turnover ratio:

Net sales/total assets

Answer for 6)

True.

Accounts receivable turnover ratio is the denominator and when the denominator decreases the answer increases automatically.

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