Which of the Following Statements Is CORRECT

question 62

Multiple Choice

Which of the following statements is CORRECT?

• A) If a firm increases its sales while holding its accounts receivable constant, then, other things held constant, its days' sales outstanding will decline.
• B) If a security analyst saw that a firm's days' sales outstanding (DSO) was higher than the industry average and was also increasing and trending still higher, this would be interpreted as a sign of strength.
• C) If a firm increases its sales while holding its accounts receivable constant, then, other things held constant, its days' sales outstanding (DSO) will increase.
• D) There is no relationship between the days' sales outstanding (DSO) and the average collection period (ACP).These ratios measure entirely different things.
• E) A reduction in accounts receivable would have no effect on the current ratio, but it would lead to an increase in the quick ratio.

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Definitions:

Income Tax Expense

The amount of expense that a company reflects on its income statement due to federal, state, and foreign income taxes.

Income Statement

A report detailing a corporation's income and expenditures within a certain timeframe, leading to either a profit or a deficit.

Sales Revenue

The earnings obtained through the sale of products or services during a certain timeframe.

Inventories

Assets held for sale in the ordinary course of business, in the process of production for such sale, or in the form of materials or supplies to be consumed in the production process or in the rendering of services.