 # Question & Answer: [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 regardin…..  Don't use plagiarized sources. Get Your Custom Essay on
Question & Answer: [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 regardin…..
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[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.

[p125-132]

The current ratio:

A.Helps to evaluate a company’s ability to pay its short term (current liabilities).

(current ratio = current assets / current liabilities)

{p125-132]

D.\$5,000 and \$12,000

(current assets / current liabilities = current ratio)

=>\$5,000 is current assets and \$12,000 is current liabilities.

[p100-105]

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 )

[p125-132]

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).

[p117-128]

B.Current ratio reflects the company’s ability to pay long term debt.[false]

[current ratio guages the ability to meet short term liabilities]