Which of the Following Statements About Liquidity Is True

question 98

Multiple Choice

Which of the following statements about liquidity is true?

• A) If a firm has a high degree of liquidity, it also faces a high degree of financial distress.
• B) At times, too little liquidity can result in lower profits for a firm since there is often a trade-off between liquidity and profitability.
• C) You can get an accurate picture of the liquidity of a firm by looking at its current assets.
• D) Accounts receivable are generally considered to be more liquid than cash.
• E) An asset is liquid if it can be sold quickly regardless of price.

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Definitions:

Ending Inventory

The overall worth of merchandise up for sale following the conclusion of an accounting cycle.

LIFO Method

Last-In, First-Out Method is an inventory valuation method where the most recently produced or purchased items are recorded as sold first, while older stock remains in inventory.

FIFO Inventory

An approach to managing stock whereby the oldest inventory items are sold first, adhering to the First In, First Out principle.

Income Taxes

Taxes levied by the government on income generated by businesses and individuals within its jurisdiction.