Current Assets & Liabilities

Question 1

FAR - CPA

What is a current asset?

Answer 1

Cash plus other assets that are expected to be sold or converted to cash during the current operating cycle

Includes: Demand deposits, cash equivalents, accounts receivable, inventory, pre-paids, and short-term investments

Question 2

FAR - CPA

What is a current liability?

Answer 2

A liability expected to be paid within 12 months or less

Question 3

FAR - CPA

How is the Quick Ratio calculated?

Answer 3

(Cash + A/R + Trading Securities) / Current Liabilities

Question 4

FAR - CPA

How is the Current Ratio calculated?

Answer 4

Currents Assets / Current Liabilities

Question 5

FAR - CPA

How is Working Capital calculated?

Answer 5

Currents Assets - Current Liabilities

Question 6

FAR - CPA

How is A/R Turnover calculated?

Answer 6

Credit Sales / Average A/R

Question 7

FAR - CPA

How is Inventory Turnover calculated?

Answer 7

COGS / Average Inventory

Question 8

FAR - CPA

How is Day Sales in Inventory calculated?

Answer 8

365 / Inventory Turnover

Question 9

FAR - CPA

How is Days to Collect A/R calculated?

Answer 9

Average A/R / Average Sales per Day

Question 10

FAR - CPA

How are gain contingencies recorded?

Answer 10

They are NOT accrued due to Conservatism

Question 11

FAR - CPA

When are loss contingencies recorded?

Answer 11

If Probable - they are accrued (if estimable) and disclosed

If Reasonably Possible - they are disclosed

If Remote - don’t accrue or disclose