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17. A potential investor interested in predicting the earnings of a company in the future should

examine the:

1. Balance Sheet only.
2. Income Statement only.
3. Statement of Retained Earnings.
4. Statement of Retained Earnings and Balance Sheet.

18. Which statement below is FALSE?

1. Income taxes payable are tax debts owed to the government.
2. Accrued liabilities can include liabilities for salaries and utilities.
3. Short-term investments include stocks and bonds of other companies.
4. Prepaid expenses include accrued interest payable.

19. PT Company reported the following information for 20X6 and 20X7:

20X6 20X7

Sales $100,000 $120,000

Cost of goods sold 50,000 66,000

Inventory turnover 4 6

Given these facts, which of the following statements could be true?

1. Accounts receivable increased.
2. Average inventory increased.
3. Cost of goods sold decreased.
4. Average inventory decreased.

20. Xena has the following working capital ratios:

20X9 20X8

Current ratio 12:1 15:1

Receivables days 75 days 50 days

Payables days 30 days 45 days

Inventory turnover 42 days 35 days

Which of the following statements is correct?

1. Xenas liquidity and working capital has improved in 20X9
2. Xena is receiving cash from customers more quickly in 20X9 than in 20X8
3. Xena is suffering from a worsening liquidity position in 20X9
4. Xena is taking longer to pay suppliers in 20X9 than in 20X8