Question

17.

Accelerated depreciation methods for financial reporting are most likely to have which of the following effects on a company's financial ratios during the early years of an asset's life?

		Lower debt-to-equity ratio.
		Higher asset turnover ratio.
		Lower current ratio

18.

If a company using last in, first out (LIFO) reports an inventory balance of $22,000 and a LIFO reserve of $4,000 (assume a 40% effective tax rate), the estimated value for the inventory on a first in, first out (FIFO) basis would be:

		$18,000.
		$24,400.
		$26,000.

28.

Under an operating lease (versus a finance lease) which of the following is higher for the lessee?

		Cash flow from financing.
		Assets.
		Cash flow from operations.

Answer 1

17: Higher asset turnover ratio

Since higher depreciation is being charged on fixed assets the value of assets will be lesser and this will result in a higher asset turnover ratio which is calculated as sales/total assets. There is no impact on debt and equity or on current assets and current liabilities.

18:26000

Ending Inventory = Beginning Inventory + reserve

= 22000+ 4000

=26000

28: Cash flow from financing.

Operating lease records the payments as expenses while financial lease records the payments as a loan and asset appears on the balance sheet. The payments will be recorded as cash outflow from financing activities and so cash flow from financing will be lesser in case of financially lease.