Assuming Two Companies Use the Same Accounting Methods, Other Things

question 26

Multiple Choice

Assuming two companies use the same accounting methods, other things being equal, the company with a higher fixed asset turnover ratio:

• A) has a greater amount invested in fixed assets than a company with a lower fixed asset turnover ratio.
• B) has less invested in fixed assets than a company with a lower fixed asset turnover ratio.
• C) generates less sales revenue than a company with a lower fixed asset turnover ratio.
• D) makes better use of its fixed assets to generate revenues than a company with a lower fixed asset turnover

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Definitions:

Interest-Bearing Note

A debt instrument that pays interest to the holder until maturity.

Note Payable

A written promise to pay a specific amount of money, usually with interest, by a certain date.

Promissory Note

A written promise to pay a specified amount of money on demand or at a definite time.

Current Liability

A company's debts or obligations that are due within one year or within the normal operating cycle, whichever is longer.