[p 125-132] The current ratio: Ip 125-132] Most of the following statements are true of the profit margin ratio. Which statement is FALSE regarding the profit margin ratio? O Helps to evaluate a company’s ability to pay its short-term (current) liabilities Is sometimes called return on sales Is used to measure a company’s long-term profitability O It reflects the percent of profit in each dollar of net sales d Is used to measure the relation between assets and long-term debt O It measures the risk that the firm cannot pay its short-term obligations. O Measures how quickly a company is selling its It is calculated by dividing net income by net sales inventory Critical thinking and p 125-132] Clara’s Construction has current assets of $5,000 and noncurrent assets of $10,000, It also has current liabilities of $12,000 and long-term liabilities of $28,000. What amounts will Clara use to calculate the Current ratio? p 117-128 and critical thinking ] Most of the following statements are true. Which statement is FALSE? O Profit margin ratio reflects the amount of profit in each dollar of net sales. O $5,000 and $10,000 O $12,000 and $28,000. O $10,000 and $12,000 O $5,000 and $12,000 Current ratio reflects a company’s ability to repay its long-term debt A six-month note payable is a current liability O Current ratio is computed as current assets divided by current liabilities.
The current ratio:
A.Helps to evaluate a company’s ability to pay its short term (current liabilities).
(current ratio = current assets / current liabilities)
D.$5,000 and $12,000
(current assets / current liabilities = current ratio)
=>$5,000 is current assets and $12,000 is current liabilities.
C.”smoothing” sharp increases or decreases in net income in two or more periods, so net income appears more stable (not valid)
(accounting should strive to present a true view of the results of the entities, but should not take any steps which present a distorted view, this is the reason why adjusting entries are made )
FALSE regarding profit sharing ratio
C.It measures the risk that the firm cannot pay its short term obligations.[false]
(it is the current ratio, which measures the risk of not being able to pay short term obligations).
B.Current ratio reflects the company’s ability to pay long term debt.[false]
[current ratio guages the ability to meet short term liabilities]