A noncash item refers to which of the following? Select one: a. Accrued expenses

Question

A noncash item refers to which of the following?

Select one:

a. Accrued expenses

b. Inventory items purchased using credit

c. The ownership of intangible assets such as patents

d. Expenses which do not directly affect cash flow

e. Sales which are made using store credit

Current assets include which of the following?
I. Patent
II. Inventory
III. Accounts Payable
IV. Cash

Select one:

a. I and III only

b. II and IV only

c. I, II, and IV only

d. I, II, and III only

e. II, III, and IV only

If a company takes on a higher degree of leverage, then

Select one:

a. There is a higher probability that the firm will encounter financial distress

b. The company incurs a lower amount of debt

c. There is less debt the company has per dollar of total assets

d. The higher the number of outstanding shares of stock

e. The lower the accounts payable balance

Explanation / Answer

A noncash expense is an expense which is part of the financial statement but in reality, there is no cash transaction occured for that period. So acrrued expenses, inventory purchased on credit and Expenses which do not directly affect cash flow are non cash

Current assets are those assests which are liquid or can be easily liquidated. Any asset which can be converted into cash within 1 year. So in this case, cash, Inventory and account receivable all are current assets

Leverage is basically using the borrowed funds to run the operation and make profit. If one can make profit using leverage, % of profit will be higher because invested equity is less. For example if i am investing $ 100 in a business and making $120 in a year. My profit is 20%. But if i am borrowing $80 and only putting $ 20 from my side, i am gaining 20 on 20. Returning the $80 with interest i.e for example $88 (10% rate), i am still making $12 on @$20, which is 60%

But as we increase the leverage, there is probabilty of distress also, because if company does not make profit, it still needs to pay the interest.

So in this case, Higher the degree of leverage, higher the probability of financial distress

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