1.The order in which financial statements are prepared is as follows a.Income St

Question

1.The order in which financial statements are prepared is as follows  

a.Income Statement;

b.Balance Sheet;

c.Statement of Stockholders Equity;

d.Statement of Cash Flows

True/ False

2.Income statement measures income on a given day  

True/ False

3.Gross margin is not indicative of how solvent a company is, while Debt to Equity Ratio does indicate how able to company is to handle its liabilities in the future

True/ False

4.Solvency ratios show a company’s ability to make payments and pay off its long-term obligations to creditors, bondholders, and banks while Liquidity ratios analyze the ability of a company to pay off both its current liabilities as they become due as well as their long-term liabilities as they become current

True/ False

Explanation / Answer

.Q 1The order in which financial statements are prepared is as follows:

False

The order is

1. Statement of Stockholders Equity

2. Statement of Cash Flows

3. Income Statement

4. Balance Sheet

Q2. The income statement measures income on a given day  

False: The income statement is prepared for an accounting period to say a year.

3. Gross margin is not indicative of how solvent a company is, while Debt to Equity Ratio does indicate how able to company is to handle its liabilities in the future

True: the gross margin is a reflection of profitability whereas, debt/equity is a mirror of solvency

4. Solvency ratios show a company’s ability to make payments and pay off its long-term obligations to creditors, bondholders, and banks while Liquidity ratios analyze the ability of a company to pay off both its current liabilities as they become due as well as their long-term liabilities as they become current

True: Solvency ratio represents the ability to pay the long-term debt whereas, liquidity ratio represents the ability to meet the current liability.

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