Chapter 5, Problem 8P

Determining the Effects of Transactions on Ratios

LO5-4

Mateo Inc, is a retailer of men's and women's clothing aimed at college-age customers. Listed below are additional transactions that Mateo was considering at the end of the accounting period.

Required:

Listed below are additional transactions that occurred during the fiscal year. Complete the following tabulation, indicating the sign of the effect of each additional transaction (+ for increase, − for decrease, and NE for no effect). Consider each item independently and ignore taxes. (Hint: Construct the journal entry for each transaction before evaluating its effect.)

1. a. Borrowed $3,000 on a line of credit with the bank.
2. b. Incurred salary expense of $1,000 paid for in cash.
3. c. Provided $2,000 of services on account.
4. d. Purchased $700 of inventory on account.
5. e. Sold $500 of goods on account. The related cost of goods sold was $300. Gross profit margin was 45 percent before this sale.

Transaction	Total Asset Turnover	Return on Assets	Gross Profit Percentage
a.
b.
c.
d
e.