Indicate the effects (increase, decrease or no effect) of each of the following independent transactions on: 1. the rate of return on shareholders ’ equity 2. the current ratio 3. the debt-to-equity ratio. State any necessary assumptions. a) Inventory costing $410 000 is purchased on account. b) Inventory costing $240 000 is sold on account for $300 000. c) Collections from customers on accounts receivable total $100 000.
Indicate the effects (increase, decrease or no effect) of each of the following independent transactions on: 1. the rate of return on shareholders ’ equity 2. the current ratio 3. the debt-to-equity ratio. State any necessary assumptions. a) Inventory costing $410 000 is purchased on account. b) Inventory costing $240 000 is sold on account for $300 000. c) Collections from customers on accounts receivable total $100 000.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Effect of transactions on ratios
Indicate the effects (increase, decrease or no effect) of each of the following independent transactions on:
1. the
2. the
3. the debt-to-equity ratio.
State any necessary assumptions.
a) Inventory costing $410 000 is purchased on account.
b) Inventory costing $240 000 is sold on account for $300 000.
c) Collections from customers on
d) Payments to suppliers on accounts payable total $160 000.
e) A machine costing $80 000, on which $60 000 of
f) Dividends of $80 000 are declared. The dividends will be paid during the next accounting period.
g) Ordinary shares are issued for $175 000.
h) A machine costing $60 000 is acquired. Cash of $10 000 is given, and a note for $50 000 payable five years from now is signed for the balance of purchase price.
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