1. Which one of the following is most commonly used to assess the \"liquidity\"
ID: 2468060 • Letter: 1
Question
1. Which one of the following is most commonly used to assess the "liquidity" of a company?
a. Income Statement
b. Balance Sheet
c. Statement of Owners' Equity
d. Statement of Cash Flows.
2. Assume that beginning in January 2016 Siesta Company decides to offer a 1-year warranty on bedroom sets it sells and estimates the amount will be 1% of sales. Which of the following would be negatively impacted by this decision [hint: make the journal entry]?
A. current ratio
B. net profit margin ratio
C. debt-to-asset ratio
D. all of the above
3. When ABC Company purchased inventory items from a supplier, why didn’t ABC Company pay sales tax at time of purchase?
A. because ABC Company is a business (rather than an individual) vendor/supplier is not responsible for collecting sales tax but rather ABC Company is responsible for filing a sales tax return at the end of the year when it will pay all sales taxes for purchases it made that were not taxed
B. because ABC Company purchased the items for resale Siesta Company does not have to pay sales tax on these items
C. more than likely these items were non-taxable due to the nature of the items being purchased (e.g. like clothing in the State of Minnesota)
D. because ABC Company purchased the items for resale the vendor/supplier must pay the sales tax on these items
Explanation / Answer
1.Liquidity is the ability of the company to meet short term obligations for period upto one year.
Cash flow statement is used to measure the liquidity position .
2.
Exercise of warranty will impact all below:
1.Current ratio
2.Profitability ratio
3.Debt equity
3.Here ABC is a manufacturer and not a reseller ,hence it is not liable to pay sales tax to the vendor.
D is answer.
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