Question

Concept Questions 1. Liquidity True or false: All assets are liquid at some price. Explain. 2. Accounting and Cash Flows Why might the revenue and cost figures shown on a standard income statement not represent the actual cash inflows and outflows that occurred during a period? CHAPTER 2 Financial Statements and Cash Flow 35 3. Accounting Statement of Cash Flows Looking at the accounting statement of cash flows. what does the bottom-line number mean? How useful is this number for analyzing a company? 4. Cash Flows How do financial cash flows and the accounting statement of cash nowsh differ? Which is more useful for analyzing a company? 5. Book Values versus Market Values Under standard accounting rules, it is possible for a company's liabilities to exceed its assets. When this occurs, the owners' equity is negative. Can this happen with market values? Why or why not? 6. Cash Flow from Assets Why is it not necessarily bad for the cash flow from assets to be negative for a particular period? 7. Operating Cash Flow Why is it not necessarily bad for the operating cash flow to be negative for a particular period? 8. Net Working Capital and Capital Spending Could a company's change in net working capital be negative in a given year? (Hint: Yes.) Explain how this might come about. What about net capital spending? 9. Cash Flow to Stockholders and Creditors Could a company's cash flow to stockholders be negative in a given year? (Hint: Yes.) Explain how this might come about. What about cash flow to creditors! 10. Firm Values In February 2017, Toshiba announced that it was writing off $6.3 billion due to its acquisition of nuclear power plant construction firm CB&I Stone & Webster only a year before. We would argue that Toshiba's stockholders probably didn't suffer as a result of the reported loss. What do you think is the basis for our conclusion

Answer 1

1. Liquidity: True or false: all assets are liquid at some price. Explain.

Answer: The given statement is true, because all assets are liquid at some price in its lifetime.

Explanation:

Liquidity refers to easiness and speed to which assets can be converted in to cash.

Liquid assets means assets which are easily and quickly converted in to cash and it should be done easily and at market value or with negligible change in its price comparing to market value.

The above given statement is true because any asset can be converted in to cash in its lifetime at some price, it may be any point of time it’s not today or in any fixed period of time but in life time of any particular asset the time arrives when it can be easily and quickly converted in to cash at its current market value.

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