What is the effect on working capital and the current ratio

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Reference no: EM133010350

Question 1: The most important reason for preparing a statement of cash flows is to compute the change in cash.

True

False

Question 2: Paid cash for office supplies, $9,000. What is the effect on working capital, the current ratio, and the acid-test ratio? Assume the current ratio is 1:1 before this transaction occurred.

Option 1: Increase working capital and current ratio, decrease acid-test ratio.

Option 2: No effect on all three items.

Option 3: No effect on working capital and current ratio, decrease acid-test ratio.

Option 4: Decrease all three items.

Question 3: Depreciation provides cash for replacing plant assets; and this is the reason depreciation is shown as an inflow of cash on the statement of cash flows.

True

False

Question 4: The indirect method of computing cash flows from operating activities adjusts net income rather than each income statement item to a cash basis.

True

False

Reference no: EM133010350

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