correct answer for each question is indicated by a

1 INCORRECT

Which of the following statements concerning the current accounts are correct? I. Accrued expenses are current liabilities. II. A current liability requires payment within the shorter of one year or the operating cycle. III. Prepayments and deferred charges are current assets. IV. Marketable securities are current assets. A) B) C) D) I and II only III and IV only I, II, and III only I, II, and IV only

I, III, and IV only E) Feedback: Marketable securities are a current asset. Review section 26.1.

2 INCORRECT

Which one of the following equations is correct? A) Net working capital = Long-term debt + Equity + Fixed assets.

Cash + Other current assets = Long-term debt Current liabilities + B) Equity Fixed assets. C) D) Net working capital + Cash = Other current assets Current liabilities. Cash = Long-term debt + Equity Fixed assets.

Cash = Long-term debt + Equity Net working capital (excluding cash) E) Fixed assets. Feedback: Net working capital + Fixed assets = Long-term debt + Equity. Review section 26.2.

3 INCORRECT

Which one of the following activities will increase cash? A) B) C) D) decreasing long-term debt increasing accounts receivable decreasing fixed assets decreasing current liabilities

increasing marketable securities E) Feedback: Decreasing a liability decreases cash. Review section 26.2.

4 INCORRECT

Which one of the following is a source of cash? A) payment of a $15,000 dividend

B) C) D)

investment of $20,000 in inventory borrowing $10,000 from a supplier granting of $1,500 credit to a customer for a sale

buying a $3,000 computer for the firm's office manager E) Feedback: This is a use of cash. Review section 26.2.

5 INCORRECT

Which one of the following is a source of cash? A) B) C) D) paying off a mortgage reducing accounts receivable decreasing accounts payable investing in a marketable security

increasing prepayments E) Feedback: Decreasing a liability is a use of cash. Review section 26.2.

6 INCORRECT

An increase in which one of the following is a use of cash? A) B) C) D) notes payable common stock taxes payable retained earnings

intangibles E) Feedback: An increase in a liability or equity account is a source of cash. Review section 26.2.

7 INCORRECT

Which one of the following statements is true concerning the operating cycle? A) The inventory period ends when the receivable is collected.

The length of the operating cycle is always greater than or equal to the B) length of the cash cycle. The accounts receivable period is always greater than or equal to the C) length of the cash cycle. The inventory period plus the accounts receivable period is equal to the D) operating cycle plus the cash cycle. The accounts payable period ends when inventory is sold. E) Feedback: The inventory period ends when the receivable is created.

Review section 26.3.

8 INCORRECT

The length of time between the arrival date of inventory and the date when cash is collected for the sale of that inventory is called the: A) B) C) D) inventory period. accounts receivable period. accounts payable period. cash cycle.

operating cycle. E) Feedback: This is true for cash sales but not for credit sales. Review section 26.3.

9 INCORRECT

The cash cycle is the time period between the date when inventory is: A) B) C) D) received and when it is actually paid for. paid for and when the cash is collected from its sale. received and the date when cash is received for the sale. paid for and when it is sold.

received and when it is actually sold. E) Feedback: This defines the accounts payable period. Review section 26.3.

10 INCORRECT

Which one of the following will increase the length of the cash cycle? A) B) C) D) increasing the inventory turnover rate decreasing the accounts receivable period decreasing the accounts payable period increasing the accounts receivable turnover rate

decreasing the accounts payable turnover rate E) Feedback: Increasing the inventory turnover rate decreases both the inventory period and the cash cycle. Review section 26.3.