Which of the Following Statements About the Quality of Earnings

question 35

Multiple Choice

Which of the following statements about the quality of earnings ratio is true?

• A) Failure to accrue appropriate expenses will inflate net earnings and increase the quality of earnings ratio.
• B) When sales are growing, receivables and inventory normally increase faster than trade payables so the ratio increases.
• C) Failure to accrue appropriate expenses will inflate net earnings and reduce the quality of earnings ratio.
• D) Seasonal variations in sales have no impact on the quality of earnings ratio.

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Definitions:

Regressive Tax

A tax system designed so that the rate of tax reduces as the taxable income rises.

Consumer Groups

Organizations that advocate for the rights and interests of consumers by providing education, policy advocacy, and products or services testing.

Sales Tax

A tax imposed by a government on sales of goods and services, collected by the retailer and passed on to the government.

Tax System

The structured way in which taxes are imposed in a country, including the collection of taxes from individuals and businesses.