Rainsoft Company Selected Data from the Financial Statements Are Provided

question 145

Multiple Choice

Rainsoft Company Selected data from the financial statements are provided below:
$\begin{array}{llc}& \underline { 2015 }& \underline { 2014 }& \underline {2013 }\\ \text { Cash } &\$ 44,000 & \$ 28,000 & \$ 14,000 \\ \text { AccountsReceivable } &84,000 & 32,000 & 114,400 \\ \text { Inventory } &44,000 & 166,000 & 100,000 \\ \text {Prepaid Expenses } &\underline {46,000} & \underline {36,000} & \underline {41.600}\\ \text { Total Curent Assets } &\$ 218,000 & \$ 262,000 & \$ 270,000\\\\ \text { Total Current Liabilities } &\$ 130,000 & \$ 144,000 \\ \text { Net Credit Sales } &442,000 & 652,000 \\ \text { Cost of Goods Sold } &336,000 & 598,000 \\ \text { Net Cash Flows from Operating Activities } &32,000 & 58,000\end{array}$
-Refer to Rainsoft Company.Which of the following statements is true regarding 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 2015 compared to 2014.
• B)The quick ratio decreased from 2014 to 2015.
• C)The operating cash flow ratio increased from 2014 to 2015.
• 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 2015 compared to 2014.

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Definitions:

Relative Purchasing Power Parity

A theory that states the rate of appreciation or depreciation of one currency relative to another will equal the rate of inflation differentials between the two countries.

Expected Inflation

The rate at which the general level of prices for goods and services is rising, and subsequently, purchasing power is expected to fall.

Absolute Purchasing Power Parity

A theory that suggests that the price of goods in different countries should be equal when measured in a common currency.

Exchange Rate

The price of one country's currency in terms of another currency or currencies.