Which of the Following Statements Regarding Liquidity Ratios Is False

question 41

Multiple Choice

Which of the following statements regarding liquidity ratios is false?

• A)A high current ratio generally indicates the ability to pay current liabilities on a timely basis.
• B)A high acid-test ratio generally indicates the ability to pay current liabilities on a timely basis.
• C)All current assets are due within one year and therefore have essentially equal liquidity.
• D)As a rule of thumb,a current ratio of 1 or higher often reflects an acceptable level of liquidity.

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Definitions:

Liability

An obligation of an entity arising from past transactions or events, the settlement of which may result in the transfer or use of assets, provision of services, or other yielding of economic benefits in the future.

Fixed Asset

Long-term tangible property owned by a business that is used in its operations and not expected to be converted to cash in the short term.

Market Value

The current price at which an asset or service can be bought or sold, often determined by supply and demand in the marketplace.

Balance Sheet

A financial statement that presents a company's assets, liabilities, and shareholders' equity at a specific point in time.