Which of the Following Statements Is CORRECT

question 12

Multiple Choice

Which of the following statements is CORRECT?

• A) A reduction in inventories will have no effect on the current ratio.
• B) An increase in inventories will have no effect on the current ratio.
• C) If a firm increases its sales while holding its inventories constant,then,other things held constant,its inventory turnover ratio will increase.
• D) A reduction in the inventory turnover ratio will generally lead to an increase in the ROE.
• E) If a firm increases its sales while holding its inventories constant,then,other things held constant,its fixed assets turnover ratio will decline.

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Definitions:

Accrual Accounting

An accounting method that records revenues and expenses when they are incurred, regardless of when cash transactions occur, providing a more accurate picture of a company's financial condition.

Recorded

The act of documenting financial transactions in the accounting records or ledgers of a company.

Adjusted Trial Balance

A financial statement that lists all accounts of a company and their balances after adjustments have been made.

Adjusting Entries

Journal entries made in accounting to update the records for revenues and expenses that have accrued but not yet been recorded through standard accounting transactions.