1. Frigid Company is in the snow removal business . Ignoring taxes, which one of
ID: 2434623 • Letter: 1
Question
1. Frigid Company is in the snow removal business.
Ignoring taxes, which one of the items [A - D] below is incorrect (false) with respect to the effect the following transaction had on each item [A - D]?
Frigid Company plowed a department store parking lot for $900 cash.
A) Balance sheet [A = L + OE] => 900 = 0 + 900
B) Income statement [revenues - expenses = net income] => 900 - 0 = 900
C) debt-to-asset ratio => was increased
D) asset turnover ratio => was increased if prior to this transaction this ratio was less than one
2. Atlas Company had the following "debt-to-asset" ratios:
At the 2011 balance sheet date = 45.2%
At the 2010 balance sheet date = 39.2%
Which one of the following statements is correct (true)?
A) Accelerating collections of A/R [i.e. collecting cash more quickly from customers who were sold to on credit], would improve the debt-to-asset ratio.
B) Both the income statement and balance sheet are needed to compute the "debt-to-asset" ratio.
C) At the 2011 balance sheet date, 54.8% of Atlas Company's assets were owned by the stockholders.
D) Atlas Company's debt-to-asset ratio was better at the end of 2011 than it was at the end of 2010.
Explanation / Answer
1. Frigid Company is in the snow removal business C) debt-to-asset ratio => was increased 2. Atlas Company had the following "debt-to-asset" ratios: At the 2011 balance sheet date = 45.2% At the 2010 balance sheet date = 39.2% Which one of the following statements is correct (true)? A) Accelerating collections of A/R [i.e. collecting cash more quickly from customers who were sold to on credit], would improve the debt-to-asset ratio.
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