Judge the assertion and the reason

Exercise and reference answers

Questions

1. Reason

   Both are computed from current assets and current liabilities.

   Verdict

   Both are true; the reason explains the assertion.

   Assertion

   The current ratio is closely related to working capital.

2. Reason

   There are four main types of ratios in total.

   Verdict

   Both are true; the reason does not explain the assertion.

   Assertion

   Efficiency ratios show how well assets are managed.

3. Reason

   Solvency is measured by dividing current assets by current liabilities.

   Verdict

   The assertion is true and the reason is false.

   Assertion

   A solvent company can meet its long-term obligations.

4. Reason

   Inventory turnover is one of the four efficiency ratios examined.

   Verdict

   The assertion is false and the reason is true.

   Assertion

   Inventory turnover is a liquidity ratio.

Instructions

Read both statements, then pick the verdict that fits.

Explanation