A Firm Wants to Strengthen Its Financial Position

question 89

Multiple Choice

A firm wants to strengthen its financial position.Which of the following actions would increase its quick ratio?

• A) Issue new common stock and use the proceeds to acquire additional fixed assets.
• B) Offer price reductions along with generous credit terms that would (1) enable the firm to sell some of its excess inventory and (2) lead to an increase in accounts receivable.
• C) Issue new common stock and use the proceeds to increase inventories.
• D) Speed up the collection of receivables and use the cash generated to increase inventories.
• E) Use some of its cash to purchase additional inventories.

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Definitions:

Perpetual System

An inventory management approach that tracks the sale and purchase of inventory in real-time, providing a continuous account of inventory and cost of goods sold.

Perpetual LIFO

A method of inventory valuation where the last items acquired are the first considered sold in an ongoing, or perpetual, system.

Inventory Flow

The progression of goods through a business, typically from purchase or production to sale, characterized by methods such as FIFO, LIFO, and weighted average.

Average Cost Method

A method of inventory valuation where the cost of goods sold and ending inventory are determined by calculating the weighted average of the costs of all items available for sale.