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An inventory write-down has a negative effect on: I). liquidity ratios. II). profitability ratios. III). activity ratios. IV). solvency ratios.
Correct Answer: B
An inventory write-down will positively affect activity ratios such as inventory turnover because the asset base (denominator) is reduced. However, all other ratios will be negatively affected as both the profit and the carrying amount of inventory are reduced.