Indicate the effects of the transactions listed in the following table on total current assets,current ratio, and net income. Use (1) to indicate an increase, (2) to indicate a decrease,and (0) to indicate either no effect or an indeterminate effect. Be prepared to state anynecessary assumptions and assume an initial current ratio of more than 1.0. (Note: A goodaccounting background is necessary to answer some of these questions; if yours is notstrong, answer the questions you can.) TotalEffectCurrentCurrenton NetAssetsRatioIncomea.Cash is acquired through issuance of additionalcommon stock.b.Merchandise is sold for cash.C.Federal income tax due for the previous year is paid.d.A fixed asset is sold for less than book value.e.A fixed asset is sold for more than book value.f.Merchandise is sold on credit.g.Payment is made to trade creditors for previous purchases.h.A cash dividend is declared and paid.i.Cash is obtained through short-term bank loans.j.Short-term notes receivable are sold at a discount.k.Marketable securities are sold below cost.I.Advances are made to employees.m.Current operating expenses are paid.Short-term promissory notes are issued to trade creditorsin exchange for past due accounts payable.n.10-year notes are issued to pay off accounts payable.O.A fully depreciated asset is retired.p.q.Accounts receivable are collected.r.Equipment is purchased with short-term notes.S.Merchandise is purchased on credit.t.The estimated taxes payable are increased.

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Answered: Total Effect Current Current on Net…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Indicate the effects of the transactions listed in the following table on total current assets,
current ratio, and net income. Use (1) to indicate an increase, (2) 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 the questions you can.)

Total
Effect
Current
Current
on Net
Assets
Ratio
Income
a.
Cash is acquired through issuance of additional
common stock.
b.
Merchandise is sold for cash.
C.
Federal income tax due for the previous year is paid.
d.
A fixed asset is sold for less than book value.
e.
A fixed asset is sold for more than book value.
f.
Merchandise is sold on credit.
g.
Payment is made to trade creditors for previous purchases.
h.
A cash dividend is declared and paid.
i.
Cash is obtained through short-term bank loans.
j.
Short-term notes receivable are sold at a discount.
k.
Marketable securities are sold below cost.
I.
Advances are made to employees.
m.
Current operating expenses are paid.
Short-term promissory notes are issued to trade creditors
in exchange for past due accounts payable.
n.
10-year notes are issued to pay off accounts payable.
O.
A fully depreciated asset is retired.
p.
q.
Accounts receivable are collected.
r.
Equipment is purchased with short-term notes.
S.
Merchandise is purchased on credit.
t.
The estimated taxes payable are increased.

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