Business Transaction 1 Universal Computer Corp. (UCC) sells 25,000 shares of new common stock ($1 per share par value) to new and existing shareholders for $20 per share. Financial Account Check if the Account Is Affected by the Specified Transaction Cash Operating Income Long-term debt Common stock Capital paid-in excess of par Financial Ratio Ratio's Behavior Inventory turnover Debt ratio Times Interest earned Operating profit margin Basic earnings power Current ratio Business Transaction 2 ☐ A $500,000 10-year bank loan is initiated, and the funds are placed in Universal Computer Corp. (UCC)'s checking account. Financial Account Long-term debt Marketable securities Common stock Cash Gross plant and equipment Financial Ratio Fixed asset turnover Debt ratio Gross profit margin Operating profit margin Return on assets Current ratio Check if the Account Is Affected by the Specified Transaction Ratio's Behavior ㅁ 11. The effect of transactions on ratios You've been asked to tutor Skyla, a finance student who doesn't feel comfortable about her understanding of the relationship between a company's business activities, its financial accounts, and the company's financial ratios. To better appreciate these relationships, you've created the following exercises for Skyla to complete. The purpose of these exercises is to help Skyla (1) understand the effect of business transactions on financial statement-such as balance sheet and income statement-accounts and (2) how these changes in the numerators and denominators of financial ratios affect the ratios' values. However, before using these exercises in your tutoring session later today, you'll want to run the calculations on the following two business transactions, to verify the accuracy of your answers. To provide a consistent frame of reference for the company's financial statements and ratios, assume that the following balance sheet and income statement reflect the company's pretransaction condition and performance. Universal Computer Corp.'s Pretransaction Statement of Financial Condition Cash $15,000 Accounts payable $20,000 Marketable securities 10,000 Wages payable 20,000 Accounts receivable 470,000 Taxes payable 10,000 Inventory 500,000 Notes payable 50,000 Prepaid expenses 5,000 Total current liabilities 100,000 Total current assets 1,000,000 Long-term debt 500,000 Total liabilities 600,000 Gross plant and equipment Accumulated depreciation Net plant and equipment 1,500,000 Common stock 150,000 500,000 1,000,000 Capital paid in excess of par 350,000 Retained earnings Total equity 900,000 1,400,000 Total assets $2,000,000 Total debt and equity $2,000,000 Universal Computer Corp.'s Pretransaction Statement of Financial Performance Sales Less: Cost of goods sold¹ Gross profit Less: Operating expenses Operating profit (EBIT) $5,000,000 2,000,000 3,000,000 600,000 2,400,000 Less: Interest expense² Earnings before taxes (EBT) Less: Tax expense³ Net income 33,000 2,367,000 828,450 $1,538,550 ¹Cost of goods sold equals 40% of sales. *Interest expense equals 6% of the combined notes payable and long-term debt balances. "The average federal and state tax rate is 35%. Indicate if any of the listed financial statement accounts is affected by the following business transactions and whether the listed ratios will increase, decrease, or remain unchanged as a result of the transaction. (Hint: Assume that the business transaction occurs exactly as stated without Interpreting it further. Do not consider any related transactions that may occur before or after the specified transaction. Assume there are 365 days in a year.)

Business Transaction 1 Universal Computer Corp. (UCC) sells 25,000 shares of new common stock ($1 per share par value) to new and existing shareholders for $20 per share. Financial Account Check if the Account Is Affected by the Specified Transaction Cash Operating Income Long-term debt Common stock Capital paid-in excess of par Financial Ratio Ratio's Behavior Inventory turnover Debt ratio Times Interest earned Operating profit margin Basic earnings power Current ratio Business Transaction 2 ☐ A $500,000 10-year bank loan is initiated, and the funds are placed in Universal Computer Corp. (UCC)'s checking account. Financial Account Long-term debt Marketable securities Common stock Cash Gross plant and equipment Financial Ratio Fixed asset turnover Debt ratio Gross profit margin Operating profit margin Return on assets Current ratio Check if the Account Is Affected by the Specified Transaction Ratio's Behavior ㅁ 11. The effect of transactions on ratios You've been asked to tutor Skyla, a finance student who doesn't feel comfortable about her understanding of the relationship between a company's business activities, its financial accounts, and the company's financial ratios. To better appreciate these relationships, you've created the following exercises for Skyla to complete. The purpose of these exercises is to help Skyla (1) understand the effect of business transactions on financial statement-such as balance sheet and income statement-accounts and (2) how these changes in the numerators and denominators of financial ratios affect the ratios' values. However, before using these exercises in your tutoring session later today, you'll want to run the calculations on the following two business transactions, to verify the accuracy of your answers. To provide a consistent frame of reference for the company's financial statements and ratios, assume that the following balance sheet and income statement reflect the company's pretransaction condition and performance. Universal Computer Corp.'s Pretransaction Statement of Financial Condition Cash $15,000 Accounts payable $20,000 Marketable securities 10,000 Wages payable 20,000 Accounts receivable 470,000 Taxes payable 10,000 Inventory 500,000 Notes payable 50,000 Prepaid expenses 5,000 Total current liabilities 100,000 Total current assets 1,000,000 Long-term debt 500,000 Total liabilities 600,000 Gross plant and equipment Accumulated depreciation Net plant and equipment 1,500,000 Common stock 150,000 500,000 1,000,000 Capital paid in excess of par 350,000 Retained earnings Total equity 900,000 1,400,000 Total assets $2,000,000 Total debt and equity $2,000,000 Universal Computer Corp.'s Pretransaction Statement of Financial Performance Sales Less: Cost of goods sold¹ Gross profit Less: Operating expenses Operating profit (EBIT) $5,000,000 2,000,000 3,000,000 600,000 2,400,000 Less: Interest expense² Earnings before taxes (EBT) Less: Tax expense³ Net income 33,000 2,367,000 828,450 $1,538,550 ¹Cost of goods sold equals 40% of sales. *Interest expense equals 6% of the combined notes payable and long-term debt balances. "The average federal and state tax rate is 35%. Indicate if any of the listed financial statement accounts is affected by the following business transactions and whether the listed ratios will increase, decrease, or remain unchanged as a result of the transaction. (Hint: Assume that the business transaction occurs exactly as stated without Interpreting it further. Do not consider any related transactions that may occur before or after the specified transaction. Assume there are 365 days in a year.)

Principles of Accounting Volume 1

19th Edition

ISBN:9781947172685

Author:OpenStax

Publisher:OpenStax

Chapter1: Role Of Accounting In Society

Section: Chapter Questions

Problem 8Q: Use the internet to research one manufacturing, one retail (or merchandising), and one service...

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