As a barometer of short-term liquidity the current ratio is limited by the natur
ID: 2564548 • Letter: A
Question
As a barometer of short-term liquidity the current ratio is limited by the nature of its components. All of the following are reasons that this is true except:
A firm could have a high current ratio but not be able to meet demands for cash because inventory is salable only at discounted prices.
The income statement may show losses rather than profits.
A firm could have a high current ratio but not be able to meet demands for cash because the accounts receivable are of inferior quality.
The balance sheet is prepared as of a particular date and the actual amount of liquid assets may vary considerably from the date on which the balance sheet is prepared.
A firm could have a high current ratio but not be able to meet demands for cash because inventory is salable only at discounted prices.
The income statement may show losses rather than profits.
A firm could have a high current ratio but not be able to meet demands for cash because the accounts receivable are of inferior quality.
The balance sheet is prepared as of a particular date and the actual amount of liquid assets may vary considerably from the date on which the balance sheet is prepared.
As a barometer of short-term liquidity the current ratio is limited by the nature of its components. All of the following are reasons that this is true except: A firm could have a high current ratio but not be able to meet demands for cash because inventory is salable only at discounted rices The income statement may show losses rather than profits. A firm could have a high current ratio but not be able to meet demands for cash because the accounts receivable are of inferior quality. The balance sheet is prepared as of a particular date and the actual amount of liquid assets may vary considerably from the date on which the balance sheet is prepared.Explanation / Answer
The Answer is "D".
D. The balance sheet is prepared as of a particular date and the actual amount of liquid assets may vary considerably
from the date on which the balance sheet is prepared.
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