The balance sheet of Walgreens, a leading chain drugstore, as of August 31, 2009, appears as follows (dollars in millions): Assets Liabilities and Shareholders’ Equity Cash $ 2,587 Accounts payable $ 4,308 Accounts receivable 2,496 Other short-term payables 2,461 Inventory 6,789 Long-term payable 3,997 Other noncurrent assets 13,270 Shareholders’ equity 14,376 Total liabilities and Total assets $25,142 shareholders’ equity $25,142 REQUIRED: Assume that the following eight transactions occurred the next year (dollars in millions). Indicate the effect of each transaction on net income (revenues minus expenses), the current ratio (current assets divided by current liabilities), working capital (current assets minus current liabilities), and the debt/equity ratio (total liabilities divided by total shareholders’ equity) of Walgreens. Use the following key: increase (), decrease (), no effect (NE). Treat each transaction independently. Net Current Working Debt/Equity Transaction Income Ratio Capital Ratio 1. Issued ownership shares for $100 cash. 2. Purchased equipment costing $95 for cash. 3. Paid off a $200 long-term liability
The
as follows (dollars in millions):
Assets Liabilities and Shareholders’ Equity
Cash $ 2,587 Accounts payable $ 4,308
Accounts receivable 2,496 Other short-term payables 2,461
Inventory 6,789 Long-term payable 3,997
Other noncurrent assets 13,270 Shareholders’ equity 14,376
Total liabilities and
Total assets $25,142 shareholders’ equity $25,142
REQUIRED:
Assume that the following eight transactions occurred the next year (dollars in millions). Indicate the effect of each transaction on net income (revenues minus expenses), the
(current assets divided by current liabilities),
liabilities), and the debt/equity ratio (total liabilities divided by total shareholders’ equity) of
Walgreens. Use the following key: increase (), decrease (), no effect (NE). Treat each
transaction independently.
Net Current Working Debt/Equity
Transaction Income Ratio Capital Ratio
1. Issued ownership shares
for $100 cash.
2. Purchased equipment costing
$95 for cash.
3. Paid off a $200 long-term
liability
P4–11
Revenue recognition,
cost expiration, and
cash flows
REAL DATA
P4–12
The effects of
transactions on
financial ratios
(Continued)
c04TheMechanicsofFinancialAccounting.QXD 9/20/10 7:16 PM Page 167
Net Current Working Debt/Equity
Transaction Income Ratio Capital Ratio
4. Sold inventory costing $500
for $685 cash.
5. Declared a $152 dividend but
have not paid.
6. Paid $200 in wages payable.
7. Received $75 from customers
on account.
8. Incurred and paid $30 in
interest on short-term payables.
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