If a Firm Has a High Current Ratio but a Low

question 127

Multiple Choice

If a firm has a high current ratio but a low acid-test ratio,one can conclude which of the following?

• A) The firm has a large outstanding accounts receivable balance.
• B) The firm has a large investment in inventory.
• C) The firm has a large amount of current liabilities.
• D) The firm's financial leverage is very high.

---

Definitions:

Adjusted Trial Balance

A list of all accounts and their balances after adjusting entries have been made, used for preparing financial statements.

Income Statement

A financial statement that shows a company’s revenues, expenses, and profits or losses over a specific period of time.

Income Summary

An account used in the closing process that summarizes revenues and expenses, transferring the net income or loss to retained earnings.

Closing Process

A sequence of steps performed at the end of an accounting period to prepare the accounts for the next period, including closing temporary accounts such as income summary, revenues, and expenses.