12 Grade Quiz #3, October 24, 2013

1. People were buying apartments, in 2008, not to live in, but to resale and make a profit.

True

False

During the 2008 housing market, many people were purchasing apartments with the intention of reselling them for a profit rather than living in them. This behavior was driven by the belief that the value of the apartments would continue to increase, allowing them to make a substantial profit upon resale. This speculative buying contributed to the housing bubble that eventually burst, leading to the financial crisis.

Explanation

During the 2008 housing market, many people were purchasing apartments with the intention of reselling them for a profit rather than living in them. This behavior was driven by the belief that the value of the apartments would continue to increase, allowing them to make a substantial profit upon resale. This speculative buying contributed to the housing bubble that eventually burst, leading to the financial crisis.

2. Which is NOT a part of the Work Cycle?

Credit

Cash

Liquidation

Production

Liquidation is not a part of the work cycle. The work cycle typically refers to the sequence of activities involved in the production process, from the acquisition of raw materials to the manufacturing and delivery of finished products. Credit, cash, and production are all integral parts of the work cycle as they involve the financial and operational aspects of producing goods or services. Liquidation, on the other hand, refers to the process of winding up a business or selling off its assets, which is not directly related to the work cycle.

Explanation

Liquidation is not a part of the work cycle. The work cycle typically refers to the sequence of activities involved in the production process, from the acquisition of raw materials to the manufacturing and delivery of finished products. Credit, cash, and production are all integral parts of the work cycle as they involve the financial and operational aspects of producing goods or services. Liquidation, on the other hand, refers to the process of winding up a business or selling off its assets, which is not directly related to the work cycle.

3. Current Assets = Stocks + Debtors + Cash

True

False

The statement "Current Assets = Stocks + Debtors + Cash" is true. Current assets are the assets that are expected to be converted into cash or used up within one year. Stocks, debtors, and cash are all examples of current assets. Stocks refer to the inventory or goods that a company holds for sale. Debtors are the amounts owed to the company by its customers or clients. Cash represents the amount of money or cash equivalents that the company has on hand. Therefore, the equation accurately represents the components of current assets.

Explanation

The statement "Current Assets = Stocks + Debtors + Cash" is true. Current assets are the assets that are expected to be converted into cash or used up within one year. Stocks, debtors, and cash are all examples of current assets. Stocks refer to the inventory or goods that a company holds for sale. Debtors are the amounts owed to the company by its customers or clients. Cash represents the amount of money or cash equivalents that the company has on hand. Therefore, the equation accurately represents the components of current assets.

4. In the movie Meltdown, excess credit was showing in 'sub-prime' loans.

True

False

The movie Meltdown depicted the presence of excess credit in 'sub-prime' loans. This implies that there was an abundance of credit being given to borrowers who had a higher risk of defaulting on their loans. This situation is often associated with the financial crisis of 2008, where the housing market collapsed due to the high number of subprime loans that were issued. Therefore, the statement is true as the movie portrays the existence of excess credit in subprime loans.

Explanation

The movie Meltdown depicted the presence of excess credit in 'sub-prime' loans. This implies that there was an abundance of credit being given to borrowers who had a higher risk of defaulting on their loans. This situation is often associated with the financial crisis of 2008, where the housing market collapsed due to the high number of subprime loans that were issued. Therefore, the statement is true as the movie portrays the existence of excess credit in subprime loans.

5. Below is the correct equation for Current Ratio: Current Assets - Stocks / Current Liabilities

True

False

The given equation for the Current Ratio is incorrect. The correct equation for the Current Ratio is Current Assets divided by Current Liabilities. The formula provided in the question, which subtracts Stocks from Current Assets, is incorrect. Therefore, the answer is False.

Explanation

The given equation for the Current Ratio is incorrect. The correct equation for the Current Ratio is Current Assets divided by Current Liabilities. The formula provided in the question, which subtracts Stocks from Current Assets, is incorrect. Therefore, the answer is False.

6. Working Capital is the ability of a firm to be able to pay its short-term debts.

True

False

Working capital refers to the difference between a company's current assets and its current liabilities. It represents the funds available to a company to meet its day-to-day operational expenses and short-term obligations. Therefore, the statement that working capital is the ability of a firm to be able to pay its short-term debts is incorrect. Working capital is a measure of a company's liquidity and its ability to manage its current financial obligations efficiently.

Explanation

Working capital refers to the difference between a company's current assets and its current liabilities. It represents the funds available to a company to meet its day-to-day operational expenses and short-term obligations. Therefore, the statement that working capital is the ability of a firm to be able to pay its short-term debts is incorrect. Working capital is a measure of a company's liquidity and its ability to manage its current financial obligations efficiently.

7. The net monthly cash flow consist of opening and closing balance.

True

False

The statement is false because the net monthly cash flow is calculated by subtracting the total cash outflows from the total cash inflows in a given month. It does not include the opening and closing balance as part of the calculation.

Explanation

The statement is false because the net monthly cash flow is calculated by subtracting the total cash outflows from the total cash inflows in a given month. It does not include the opening and closing balance as part of the calculation.