Two Firms Have the Same Current Ratio, 0

question 17

True/False

Two firms have the same current ratio, 0.75, and the same amount of sales. However, Firm A has a higher inventory turnover ratio than Firm B. Therefore, we can conclude that the quick ratio of Firm A will be smaller than that of Firm B.

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Definitions:

Notes Payable

Liabilities represented by written promises to pay specific sums of money at future dates, typically evidenced by formal instruments of credit.

Accounts Payable

Liabilities to creditors for goods or services purchased on credit, representing obligations that a company needs to pay off in the near term.

Interest Expense

The cost incurred by an entity for borrowed funds, recognized as an expense in the income statement over the period the funds are borrowed.

Unearned Revenue

Money received by a company for services or products which have not yet been delivered or performed.