Which of the Following Statements Regarding Liquidity Ratios Is True

question 3

Multiple Choice

Which of the following statements regarding liquidity ratios is true?

• A)A low current ratio generally indicates the ability to pay current liabilities on a timely basis.
• B)A low 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)A high working capital generally indicates the ability to pay current liabilities on a timely basis.

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Definitions:

Hardware Store

A retail store specializing in the sale of tools, building materials, and home improvement products.

Music Store

A retail business specializing in the sale of musical instruments, sheet music, recordings, and related accessories.

Specific Identification

An accounting method used to track and assign costs to individual pieces of inventory, useful for unique or high-value items.

Gross Profit

The financial metric indicating the difference between revenue and the cost of goods sold before accounting for other expenses.