Question

1...When using the Bardahl formula, an increase in accounts payable (while holding purchases and operating expenses constant) has which of the following effects on the working capital requirements?

A) decrease

B) increase

C) no effect

D) increase, decrease, or no effect, depending on other factors

2.

Identify which of the following statements is true.

A) Daisy Corporation is owned by a father and his son. The corporation employs 5 individuals to provide public accounting services. Father and son make all of the work assignments for the professional employees. The professional fees earned by the corporation are personal holding company income.

B) Hakeem Corporation is owned by a mother and her two daughters. It reports $95,000 of rental income, $22,000 of depreciation, interest, and property taxes on the rental real estate, and $6,000 of dividend income. Hakeem Corporation is classified as a personal holding company.

C) The personal holding company tax is levied to prevent closely held corporations from sheltering passive income.

D) All of the above are false.

Answer 1

1) ANSWER: OPTION (A)

EXPLANATION: AN INCREASE IN ACCOUNTS PAYABLE (WHILE HOLDING PURCHASES AND OPERATING EXPENSES CONSTANT) DECREASES THE WORKING CAPITAL .

2 ) Answer : option (a)

Explanation : An increase in accounts payable ( while holding purchases and operating expenses constant) decreases the working capital .