Indicate the effects of the transactions listed in the following table on total current assets, current ratio, and net income. Use (+) to indicate an increase, (−) to indicate a decrease, and (0) to indicate either no effect or an indeterminate effect. Be prepared to state any necessary assumptions and assume an initial current ratio of more than 1.0. (Note: A good accounting background is necessary to answer some of these questions; if yours is not strong, answer just the questions you can.) Total current assets Current ratio Effect on net income 1. Cash is acquired through issuance of additional common stock. 2. Merchandise is sold for cash. 3. Federal income tax due for the previous year is paid. 4. A fixed asset is sold for less than book value. 5. A fixed asset is sold for more than book value. 6. Merchandise is sold on credit. 7. Payment is made to trade creditors for previous purchases. 8. A cash dividend is declared and paid. 9. Cash is obtained through short-term bank loans. 10. Short-term notes receivable are sold at a discount. 11. Marketable securities are sold below cost. 12. Advances are made to employees. 13. Current operating expenses are paid. 14. Short-term promissory notes are issued to trade creditors in exchange for past due accounts payable. 15. 10-year notes are issued to pay off accounts payable. 16. A fully depreciated asset is retired. 17. Accounts receivable are collected. 18. Equipment is purchased with short-term notes. 19. Merchandise is purchased on credit. * 20. The estimated taxes payable are increased. * merchandise inventory can increase inventory account in the current assets section (perpetual system) or purchases account in the cost of goods sold section (periodic system)
Directions:
Indicate the effects of the transactions listed in the following table on total current assets,
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Total current assets |
Current ratio |
Effect on net income |
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1. Cash is acquired through issuance of additional common stock. |
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2. Merchandise is sold for cash. |
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3. Federal income tax due for the previous year is paid. |
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4. A fixed asset is sold for less than book value. |
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5. A fixed asset is sold for more than book value. |
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6. Merchandise is sold on credit. |
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7. Payment is made to trade creditors for previous purchases. |
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8. A cash dividend is declared and paid. |
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9. Cash is obtained through short-term bank loans. |
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10. Short-term notes receivable are sold at a discount. |
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11. Marketable securities are sold below cost. |
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12. Advances are made to employees. |
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13. Current operating expenses are paid. |
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14. Short-term promissory notes are issued to trade creditors in exchange for past due accounts payable. |
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15. 10-year notes are issued to pay off accounts payable. |
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16. A fully |
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17. |
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18. Equipment is purchased with short-term notes. |
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19. Merchandise is purchased on credit. * |
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20. The estimated taxes payable are increased. |
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* merchandise inventory can increase inventory account in the current assets section (perpetual system) or purchases account in the cost of goods sold section (periodic system)
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