Which of the Following Statements Is Most Likely Correct for a Firm

question 25

Multiple Choice

Which of the following statements is most likely correct for a firm with an average collection period of 90 days?

• A)Its average daily sales are low
• B)Its average daily sales are high
• C)Its current ratio will be high
• D)It is providing financing for approximately 25 percent of its annual sales

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Definitions:

Earned

Income or revenue that has been generated or received for goods sold or services provided.

Retained Earnings

The portion of net income that is not distributed to shareholders but is instead reinvested in the business or kept as a reserve for certain purposes.

Completed Contract Method

A financial accounting approach where revenue and expenses of a contract are recorded only when the contract is fully completed.

Long-Term Construction

Projects or contracts that span over a long period, typically larger in scope and complexity which may impact financial reporting due to their duration.