BUS 660 Topic 7 Assignment
completed with correct Answers
Course
BUS 660Topic 7 Assignment
1. Which financial statement primarily reports a company's revenues and expenses over a
specific period?
A. Balance sheet
B. Income statement
C. Statement of cash flows
D. Statement of retained earnings
Answer: B. Income statement
Rationale: The income statement summarizes revenues, expenses, gains, and losses for a period
and ultimately determines net income or net loss.
2. What is the primary purpose of working capital management?
A. Maximize long-term debt
B. Manage short-term assets and liabilities efficiently
C. Eliminate all business risk
D. Increase depreciation expense
Answer: B. Manage short-term assets and liabilities efficiently
Rationale: Working capital management focuses on current assets and current liabilities to
maintain liquidity while supporting profitable operations.
3. Which formula represents the current ratio?
A. Current liabilities ÷ current assets
B. Current assets ÷ current liabilities
C. Total assets ÷ total liabilities
D. Net income ÷ sales
Answer: B. Current assets ÷ current liabilities
Rationale: The current ratio measures a firm's ability to meet short-term obligations using
short-term assets.
, 4. A company has current assets of $150,000 and current liabilities of $100,000. What is its
current ratio?
A. 0.67
B. 1.00
C. 1.50
D. 2.50
Answer: C. 1.50
Rationale: Current ratio = $150,000 ÷ $100,000 = 1.50.
5. Which ratio is generally considered a more conservative measure of short-term liquidity
than the current ratio?
A. Gross profit margin
B. Quick ratio
C. Debt-to-equity ratio
D. Return on assets
Answer: B. Quick ratio
Rationale: The quick ratio excludes less-liquid current assets such as inventory, providing a
stricter measure of immediate liquidity.
6. What does a high accounts receivable turnover ratio generally indicate?
A. Slow collection of receivables
B. Efficient collection of credit sales
C. Excessive inventory
D. High financial leverage
Answer: B. Efficient collection of credit sales
Rationale: Higher receivables turnover generally indicates that a company is collecting
outstanding customer balances relatively quickly.
7. Which working-capital component represents goods held for sale or use in production?
A. Accounts payable
B. Inventory
C. Retained earnings
D. Common stock
completed with correct Answers
Course
BUS 660Topic 7 Assignment
1. Which financial statement primarily reports a company's revenues and expenses over a
specific period?
A. Balance sheet
B. Income statement
C. Statement of cash flows
D. Statement of retained earnings
Answer: B. Income statement
Rationale: The income statement summarizes revenues, expenses, gains, and losses for a period
and ultimately determines net income or net loss.
2. What is the primary purpose of working capital management?
A. Maximize long-term debt
B. Manage short-term assets and liabilities efficiently
C. Eliminate all business risk
D. Increase depreciation expense
Answer: B. Manage short-term assets and liabilities efficiently
Rationale: Working capital management focuses on current assets and current liabilities to
maintain liquidity while supporting profitable operations.
3. Which formula represents the current ratio?
A. Current liabilities ÷ current assets
B. Current assets ÷ current liabilities
C. Total assets ÷ total liabilities
D. Net income ÷ sales
Answer: B. Current assets ÷ current liabilities
Rationale: The current ratio measures a firm's ability to meet short-term obligations using
short-term assets.
, 4. A company has current assets of $150,000 and current liabilities of $100,000. What is its
current ratio?
A. 0.67
B. 1.00
C. 1.50
D. 2.50
Answer: C. 1.50
Rationale: Current ratio = $150,000 ÷ $100,000 = 1.50.
5. Which ratio is generally considered a more conservative measure of short-term liquidity
than the current ratio?
A. Gross profit margin
B. Quick ratio
C. Debt-to-equity ratio
D. Return on assets
Answer: B. Quick ratio
Rationale: The quick ratio excludes less-liquid current assets such as inventory, providing a
stricter measure of immediate liquidity.
6. What does a high accounts receivable turnover ratio generally indicate?
A. Slow collection of receivables
B. Efficient collection of credit sales
C. Excessive inventory
D. High financial leverage
Answer: B. Efficient collection of credit sales
Rationale: Higher receivables turnover generally indicates that a company is collecting
outstanding customer balances relatively quickly.
7. Which working-capital component represents goods held for sale or use in production?
A. Accounts payable
B. Inventory
C. Retained earnings
D. Common stock
