Which of the Following Statements Is Correct

question 21

Multiple Choice

Which of the following statements is correct?

• A)In the text, depreciation is regarded as a use of cash because it reduces fixed assets, which then must be replaced.
• B)If a company uses some of its cash to pay off short-term debt, then its current ratio will always decline, given the way ratio is calculated, other things held constant.
• C)During a recession, it is reasonable to think that most companies inventory turnover ratios will change while their fixed asset turnover ratio will remain fairly constant.
• D)During a recession, we can be confident that most companies' DSOs (or ACPs) will decline because their sales will probably decline.
• E)Each of the above statements is false.

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Definitions:

Outside Supplier

A third-party company or entity that provides products or services to another company, often used when in-house production or provision is not feasible.

Relevant Cost

Costs that will be affected by a decision in the future and therefore should be considered in the decision-making process.

Direct Labor Cost

Expenses associated with the wages and benefits of employees who are directly involved in the manufacturing process.

Financial Advantage

The benefit obtained from making a particular financial decision, typically resulting in monetary gain or cost savings.