Exercise 11-8 (Static) Effect of transactions on various financial ratiosIndicate the effect that each transaction/event listed here will have on the financial ratio listed opposite it. Use + for increase, –for decrease, and (NE) for no effect. Assume that current assets exceed current liabilities in all cases, both before and after thetransaction/event.Transaction/EventFinancial RatioEffecta. Purchased inventory on account.b. Sold inventory for cash, at a profit.c. Issued a 10% stock dividend.d. Issued common stock for cash.Number of days' sales in inventoryInventory tumoverEarnings per shareDebt ratioe. Sold land at a gain.Return on investmentf. Purchased treasury stock for cash.g. Accrued interest on a note payable.h. Accrued wages that have been earned by employees.i. Purchased equipment for cash.j. Issued bonds at an interest rate that is less than the company's ROI.Debt/equity ratioNETimes interest earnedCurrent ratioPlant and equipment turnoverReturn on equity

Transaction/Event Explanation a. Purchased inventory on account. Purchases of inventory on…

Indicate the effect that each transaction/event listed here will have on the financial ratio listed opposite it. Use + for increase, - for decrease, and (NE) for no effect. Assume that current assets exceed current liabilities in all cases, both before and after the transaction/event.

Indicate the effect that each transaction/event listed here will have on the financial ratio listed opposite it. Use + for increase, - for decrease, and (NE) for no effect. Assume that current assets exceed current liabilities in all cases, both before and after the transaction/event.

Financial Reporting, Financial Statement Analysis and Valuation

8th Edition

ISBN:9781285190907

Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Publisher:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw

Chapter5: Risk Analysis

Section: Chapter Questions

Problem 22PC

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Question

Exercise 11-8 (Static) Effect of transactions on various financial ratios
Indicate the effect that each transaction/event listed here will have on the financial ratio listed opposite it. Use + for increase, –
for decrease, and (NE) for no effect. Assume that current assets exceed current liabilities in all cases, both before and after the
transaction/event.
Transaction/Event
Financial Ratio
Effect
a. Purchased inventory on account.
b. Sold inventory for cash, at a profit.
c. Issued a 10% stock dividend.
d. Issued common stock for cash.
Number of days' sales in inventory
Inventory tumover
Earnings per share
Debt ratio
e. Sold land at a gain.
Return on investment
f. Purchased treasury stock for cash.
g. Accrued interest on a note payable.
h. Accrued wages that have been earned by employees.
i. Purchased equipment for cash.
j. Issued bonds at an interest rate that is less than the company's ROI.
Debt/equity ratio
NE
Times interest earned
Current ratio
Plant and equipment turnover
Return on equity

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