1. (Financial forecasting) Which of the following accounts would most likely var
ID: 2576136 • Letter: 1
Question
1. (Financial forecasting) Which of the following accounts would most likely vary directly with the level of firm sales? Provide a brief explanation of each.
Yes
No
Cash
_____
_____
Notes payable
_____
_____
Marketable securities
_____
_____
Plant and equipment
_____
_____
Accounts payable
_____
_____
Inventories
_____
_____
2. Classify each of the investments in assets as either permanent or temporary (explain):
a) A seasonal increase in a card shop’s inventory of Valentine cards.
b) The acquisition of a new forklift truck that is expected to have a useful life of five years.
c) An increase in accounts receivable resulting from an expansion in the firm’s customer base.
Yes
No
Cash
_____
_____
Notes payable
_____
_____
Marketable securities
_____
_____
Plant and equipment
_____
_____
Accounts payable
_____
_____
Inventories
_____
_____
Explanation / Answer
Ans 1 Yes/No Explanation Cash Yes If sale increase then cash inflow will also increase Notes payable Yes Through notes payable we can borrow money can increase our credit sales. Marketable securities No Marketable securities are non trade item. Plant and equipment No These are fixed assets that can not affect sales. Accounts payable Yes Through accounts payable we can get more inventory on credit can increase our credit sales Inventories Yes enough level of inventory is required to make sales. Permanent / Temporary Explanation Ans. 2 a. A seasonal increase in a card shop’s inventory of Valentine cards. Temporary Valantine day is once in a year. So it is temporary. b. The acquisition of a new forklift truck that is expected to have a useful life of five years. Permanent This is a fixed assets. Once it is purchased it will be used parmanently. c. An increase in accounts receivable resulting from an expansion in the firm’s customer base. Permanent increase in customer will increase the sales and accounts receivable as well.
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