TC

Accounting Quiz Q61–Q70

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Questions

Q61. Current Ratio is:

Answer: Liquidity Ratio

Solution: Current ratio measures short‑term liquidity: Current Assets ÷ Current Liabilities, so it is a liquidity ratio.

Q62. Liquid asset does not include :

Answer: Prepaid Expenses

Solution: Liquid assets are readily convertible to cash (cash, bank, receivables). Prepaid expenses are payments for future benefits and are not readily convertible to cash, so they are not considered liquid.

Q63. The ______ of a business firm is measured by its ability to satisfy its short term obligations as they become due:

Answer: Liquidity

Solution: Liquidity refers to the firm's ability to meet short‑term obligations as they fall due; ratios like current and quick ratio measure liquidity.

Q64. Patent and copyright fall under the category of :

Answer: Intangible Assets

Solution: Patents and copyrights are non‑physical rights and are classified as intangible assets on the balance sheet.

Q65. Which of the following transaction will improve quick ratio:

Answer: All above

Solution: Quick ratio excludes inventory. Cash sales convert inventory to cash (improves quick assets); credit sales convert inventory to receivables (quick assets); issuing shares for cash increases cash. Each action increases quick assets relative to current liabilities, so all listed transactions can improve the quick ratio.

Q66. Debt equity ratio is :

Answer: Solvency Ratio

Solution: Debt‑equity ratio (long‑term debt ÷ shareholders' funds) measures long‑term solvency and financial leverage, so it is a solvency ratio.

Q67. Ideal Quick Ratio is:

Answer: 1:1

Solution: The commonly accepted ideal quick (acid‑test) ratio is 1:1 — quick assets equal current liabilities — indicating adequate immediate liquidity.

Q68. If Current Ratio is 2:1, after payment of creditors ratio will:

Answer: Increase

Solution: Paying creditors reduces current liabilities and also reduces cash. When the current ratio is greater than 1 (here 2:1), the proportional reduction in liabilities typically improves the ratio, so it increases.

Q69. If Current Ratio is 2:1, after purchase of goods on credit ratio will:

Answer: Decrease

Solution: Purchasing goods on credit increases inventory (current asset) and increases current liabilities. Because liabilities rise immediately while the increase in current assets may be proportionally smaller, the current ratio generally decreases from an initial 2:1 position.

Q70. Debt Equity Ratio is:

Answer: Long term debts/ Shareholder’s fund

Solution: Debt‑equity ratio commonly refers to long‑term debt divided by shareholders' funds (equity), measuring long‑term financial leverage and solvency.

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