Problem 1.) Dividends paid
a. increase assets.
b. increase expenses.
c. decrease revenues.
d. decrease retained earnings
Problem 2.) Long-term creditors are usually most interested in evaluating
a. liquidity and profitability.
b. consistency and profitability.
c. liquidity and solvency.
d. consistency and solvency
Problem 3.) The constraint of conservatism is best expressed as:
a. the cost of applying an accounting principle should not exceed its benefit.
b. only material items should be recorded and reported.
c. when in doubt, choose the method that will least likely overstate assets and net income.
d. the lower of cost or market method should be used for inventories.
Problem 4.) Which of the following combinations presents correct examples of liquidity, profitability, and solvency ratios, respectively?
Liquidity Profitability Solvency
a. Inventory turnover Inventory turnover Times interest earned
b. Current ratio Inventory turnover Debt to total assets
c. Receivable turnover Return on assets Times interest earned
d. Average days collection Payout ratio Return on assets