Indicate the effects c assets, working capi decrease with O a an initial current rati 1. Food is sold for 2. Equipment is sc its net book valu 3. Beverages are se 4. A cash dividenc 5. Accrued payrol! 6. Treasury stock i 7. A fully deprecia is retired.
Indicate the effects c assets, working capi decrease with O a an initial current rati 1. Food is sold for 2. Equipment is sc its net book valu 3. Beverages are se 4. A cash dividenc 5. Accrued payrol! 6. Treasury stock i 7. A fully deprecia is retired.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:**Problem 1: Analysis of Transaction Effects**
For each transaction listed below, indicate its effect on the following financial indicators: total current assets, working capital (CA - CL), and current ratio. Use "+" for an increase, "-" for a decrease, and "0" if there is no effect or it cannot be determined. Assume an initial current ratio greater than 1.0.
1. **Food is sold for cash.**
2. **Equipment is sold at less than its net book value.**
3. **Beverages are sold on account.**
4. **A cash dividend is declared.**
5. **Accrued payroll is paid.**
6. **Treasury stock is purchased.**
7. **A fully depreciated fixed asset is retired.**
| Transaction Number | Total Current Assets | Working Capital | Current Ratio |
|-------------------|----------------------|-----------------|---------------|
| 1 | | | |
| 2 | | | |
| 3 | | | |
| 4 | | | |
| 5 | | | |
| 6 | | | |
| 7 | | | |
Transcribed Image Text:Certainly! Here is the transcription and explanation suitable for an educational website:
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**Text Transcription:**
8. Equipment is purchased with long-term notes.
9. Utility expenses are paid (they were not previously accrued).
10. A cash dividend is paid.
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**Explanation:**
This section deals with financial transactions related to asset acquisition, expense management, and shareholder rewards:
1. **Equipment Purchase with Long-term Notes**:
- This involves acquiring equipment for business operations, financed through long-term financial instruments. Long-term notes typically extend beyond a year and involve interest payments over the period.
2. **Utility Expenses Payment**:
- Utility expenses such as electricity, water, and internet are settled. The note specifies that these costs were not accrued earlier, indicating they were likely incurred and paid within the same accounting period.
3. **Cash Dividend Payment**:
- A distribution of cash to shareholders, reflecting a portion of a company’s earnings. This transaction signifies a company’s financial health and its ability to generate profit and return value to investors.
These entries are fundamental to understanding financial reporting and accounting practices, impacting both balance sheets and cash flow statements.
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**Note**: There is no graph or diagram to explain from the provided image.
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Current assets are the assets that are sold or used in the period of one year.
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