Question

which of the following statements is not true

30 4 pts Question 27 Wic f the alowing statements's not true? lover scuants recokase bunover ratio means a higher average collection period Tlir utS-year lon and using the preceds to buy a new truck has no immedate effect on the current Parcaing shart-tem marketbile securites with cash will not affect the acid-test ratio tde nadineny for cash inreanes the acld-test ratio Theamert tatoisualylower than the acid-fest ratio. Question 28 rdiss Incasivolesales prosides the tolavsing performance report for the month of April 4 pts MacBook Air Air

Answer 1

The following statement is not true,
The Current ratio is usually lower than the acid test ratio.
The other four statements are true.
Statement 1 - It is true
The formula to calculate the average collection period = 365 days / Accounts receivable turnover ratio
Therefore , Lower the accounts receivable turnover ratio result into higher average collection period.
Statement 2 - It is true
5 year loan taken form part of Long term debt and Machinery purchased formed part of Fixed assets.
Hence , loan taken to purchase machinery will not impact current ratio which is calculated as current assets/current liabilities.
Statement 3 - It is true
Both short term markatable securities and cash form part of quick current assets.Hence decrease in Cash and increase in
markatable securities to that extent will affect acid test ratio which is calculated as Quick current assets / current liabilities.
Statement 4 - It is true
Selling old machinery for cash decrease the fixed assets and increases the cash which is part of quick current assets
and hence it result into increase in acid test ratio.
Statement 5 - It is not true
Current ratio is calculated considering entire current assets and dividing it by total current liabilities whereas acid test ratio
is calculated by taking into account only the liquid current assets (excluding inventory and prepaid expenses) and dividing it
by total current liabilities.Numerator in case of current ratio is on higher side and whereas in case of acid test ratio it is lower side.
Hence , usually acid test ratio is lower than current ratio.