The Current Ratio Is Not the Most Stringent Measure of Liquidity

question 18

Multiple Choice

The current ratio is not the most stringent measure of liquidity, because it ____.

• A) is difficult to calculate
• B) includes some items, such as inventory, that may not be readily liquid
• C) requires many years of past data
• D) includes many non-current items in its calculation

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Definitions:

Product Costing System

A framework used to determine the expense associated with producing a product, taking into account all direct and indirect costs.

Indications

Suggestions or signals that point towards a specific condition, trend, or action.

Behavioral Implications

The impact that business strategies and practices have on the behavior and motivation of individuals within an organization.

ABC

Activity-Based Costing, a method of allocating overhead and indirect costs to specific products or projects based on the activities that consume resources.