Selected Data from the Financial Statements Are Provided in the Following

question 101

Multiple Choice

Selected data from the financial statements are provided in the following table:
$\begin{array}{lrrr}&\text { Year } 3&\text { Year } 2&\text { Year } 1\\\text { Cash } & \$ 44,000 & \$ 28,000 & \$ 14,000 \\\text { Accounts receivable } & 84,000 & 32,000 & 114,400 \\\text { Inventory } & 44,000 & 166,000 & 100,000 \\\text { Prepaid expenses } & 46,000 & 36,000 & 41,600\\\text { Total current assets }&\$218,000&\$262,000&\$270,000\\\\\text { Total current liabilities } & \$ 130,000 & \$ 144,000 \\\text { Net credit sales } & 442,000 & 652,000 \\\text { Cost of goods sold } & 336,000 & 598,000 \\\text { Net cash flows from operating activities } & 32,000 & 58,000\end{array}$
-Refer to the figure Rainsoft Company.Which of the following characterizes the company's liquidity?

• A) Based on the current ratio and operating cash flow ratio, the company appears to be in a worse position to pay its current obligations at the end of Year 3 compared to Year 2.
• B) The quick ratio decreased from Year 2 to Year 3.
• C) The operating cash flow ratio increased from Year 2 to Year 3.
• D) Based on the quick ratio and cash ratio, the company appears to be in a better position to pay its current obligations at the end of Year 3 compared to Year 2.

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Definitions:

Dividends

Payments made by a corporation to its shareholder members, usually as a distribution of profits.

Common Stock

Equity ownership in a corporation, offering voting rights and dividends to shareholders, subordinate to preferred stock.

Retained Earnings

The portion of net income that is not distributed to shareholders as dividends but is kept by the company for reinvestment or to pay off debt.

Net Income

The total profit of a company after subtracting all expenses, taxes, and costs from its total revenue.