Question

1. When analyzing Just for FEET, Inc.’s fiscal years 1997 and 1998 (FYE 1/31/1998 and 1/31/1999 respectively) the large increase in inventory is hard not to notice. Which financial ratio would have focused on this large increase no one noticed it?
   1. The current ratio
   2. The quick ratio
   3. Times interest earned
   4. Return on equity

2. Which of the following items did the SEC cite as playing a role in Just for FEET, Inc.’s fraudulent financial reporting?
   1. Improperly recognizing unearned and fictitious receivables from its vendors.
   2. Improperly recording as income the value of display booths provided by its vendors.
   3. Failing to properly account for excess inventory.
   4. All of the above.

Answer 1

The large amount of inventory would have been noticed by b - Quick Ratio.

While calculating quick ratio, we need quick assets which is current assets less inventory hence quick ratio would have been very less compared to current ratio and the excess inventory would have been bought to the notice.

Which of the following items did the SEC cite as playing a role in Just for FEET, Inc.’s fraudulent financial reporting?

4. All of the above.