# What effect did the borrowing transaction have on Nord Company’s current ratio?

05 / 03 / 2018 Assignment

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Nord Company had \$375,000 of current assets
and \$150,000 of current liabilities before borrowing \$70,000 from the bank with
a 3-month note payable. What effect did the borrowing transaction have on Nord
Company’s current ratio?

a. The ratio remained unchanged.

b. The change in the current ratio cannot be
determined.

c. The ratio decreased.

d. The ratio increased.

98. If equal amounts are added to the numerator
and the denominator of the current ratio, the ratio will always

a. increase.

b. decrease.

c. stay the same.

d. equal zero.

99. The acid-test ratio

a. is a quick calculation of an approximation of
the current ratio.

b. does not include all current liabilities in
the calculation.

c. does not include inventory as part of the
numerator.

d. does include prepaid expenses as part of the
numerator.

100. If a company has an acid-test ratio of
1.2:1, what respective effects will the borrowing of cash by short-term debt
and collection of accounts receivable have on the ratio?

Short-term Borrowing Collection of Receivable

a. Increase No effect

b. Increase Increase

c. Decrease No effect

d. Decrease Decrease

101. A company has a accounts receivable
turnover of 10 times. The average accounts receivable during the period are \$400,000.
What is the amount of net credit sales for the period?

a. \$40,000

b. \$4,000,000

c. \$400,000

d. Cannot be determined from the information
given

102. If the average collection period is 60
days, what is the accounts receivable turnover?

a. 6.0 times

b. 6.1 times

c. 12.2 times

d. None of these

103. A general rule to use in assessing the
average collection period is that

a. it should not exceed 30 days.

b. it can be any length as long as the customer
continues to buy merchandise.

c. it should not greatly exceed the discount
period.

d. it should not greatly exceed the credit term
period.

104. Inventory turnover is
calculated by dividing

a. cost of goods sold by the ending inventory.

b. cost of goods sold by the beginning
inventory.

c. cost of goods sold by the average inventory.

d. average inventory by cost of goods sold.

105. A company has an
average inventory on hand of \$60,000 and the days in inventory is 73 days. What
is the cost of goods sold?

a. \$300,000

b. \$4,380,000

c. \$600,000

d. \$2,190,000

106. A successful grocery store would probably
have

a. a low inventory turnover.

b. a high inventory turnover.

c. zero profit margin.

d. low volume.

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