Effects of Transactions on Various Financial Ratios
In the right-hand column below, certain financial ratios are listed. To the left of each ratio is a business transaction or event relating to the operating activities of Delta Company (each transaction should be considered independently).
Required:
Indicate the effect that each business transaction or event would have on the ratio listed opposite to it. State the effect in terms of increase. decrease, or no effect on the ratio involved, and give the reason for your answer. In all cases, assume that the current assets exceed the current liabilities both before and after the event or transaction. Use the following format for your answers:
![Check Mark](/static/check-mark.png)
Want to see the full answer?
Check out a sample textbook solution![Blurred answer](/static/blurred-answer.jpg)
Chapter 14 Solutions
Introduction to Managerial Accounting - Connect Access
- Effect of transactions on current position analysis Data pertaining to the current position of Lucroy Industries Inc. follow: Instructions 1. Compute (a) the working capital, (b) the current ratio, and (c) the quick ratio. Round ratios in parts b through j to one decimal place. 2. List the following captions on a sheet of paper: Compute the working capital, the current ratio, and the quick ratio after each of the following transactions and record the results in the appropriate columns. Consider each transaction separately and assume that only that transaction affects the data given. Round to one decimal place. a. Sold marketable securities at no gain or loss, 500,000. b. Paid accounts payable, 287,500. c. Purchased goods on account, 400,000. d. Paid notes payable, 125,000. e. Declared a cash dividend, 325,000. f. Declared a common stock dividend on common stock, 150,000. g. Borrowed cash from bank on a long-term note, 1,000,000. h. Received cash on account, 75,000. i. Issued additional shares of stock for cash, 2,000,000. j. Paid cash for prepaid expenses, 200,000.arrow_forwardEffect of transactions on various financial ratios Indicate the effect that eachtransaction/event listed here will have on the financial ratio listed opposite it, and provide an explanation for your answer. Use 1 for increase, − for decrease, and (NE) for no effect. Assume that current assets exceed current liabilities in all cases, bothbefore and after the transaction/event.Transaction/Event Financial Ratioa. Split the common stock 2 for 1.b. Collected accounts receivable.c. Issued common stock for cash.d. Sold treasury stock.e. Accrued interest on a note receivable.f. Sold inventory on account.g. Wrote off an uncollectible account.h. Declared a cash dividend.i. Incurred operating expenses.j. Sold equipment at a loss.Book value per share of common stockNumber of days’ sales in accounts receivableTotal asset turnoverReturn on equityCurrent ratioAcid-test ratioAccounts receivable turnoverDividend yieldMarginEarnings per sharearrow_forwardEffect of transactions on various financial ratios Indicate the effect that each transaction/event listed here will have on the financial ratio listed opposite it, and provide an explanation for your answer. 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 a. Purchased inventory on account. b. Sold inventory for cash, at a profit. C. Issued a 10% stock dividend. Number of days' sales in inventory Inventory turnover Earnings per share Debt ratio d. Issued common stock for cash. Return on investment e. Sold land at a gain. 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 Times interest earned Current ratio Plant and equipment…arrow_forward
- Identify how each of the following separate transactions through 10 affects financial statements. For increases, place a "+" and the dollar amount in the column or columns. For decreases, place a "-" and the dollar amount in the column or columns. Some cells may contain both an increase (+) and a decrease (-) along with dollar amounts. The first transaction is completed as an example. Required: a. For the balance sheet, identify how each transaction affects total assets, total liabilities, and total equity. For the income statement, identify how each transaction affects net income. b. For the statement of cash flows, identify how each transaction affects cash flows from operating activities, cash flows from investing activities, and cash flows from financing activities. Transaction 1. Owner invests $750 cash in business in exchange for stock 2. Receives $550 cash for services provided 3. Pays $350 cash for employee wages 4. Buys $480 of equipment on credit 5. Purchases $580 of supplies…arrow_forwardHow is a financial ratio analysis performed? Comparing two items in financial statements. Evaluating the balance sheet Assessing the income statementarrow_forwardIdentify how each of the following separate transactions through 10 affects financial statements. For increases, place a "+" and the dollar amount in the column or columns. For decreases, place a "-" and the dollar amount in the column or columns. Some cells may contain both an increase (+) and a decrease (-) along with dollar amounts. The first transaction is completed as an example. Required a. For the balance sheet, identify how each transaction affects total assets, total liabilities, and total cq- A1 P1 uity. For the income statement, identify how each transaction affects net income. b. For the statement of cash flows, identify how each transaction affects cash flows from operating ac- tivities, cash flows from investing activities, and cash flows from financing activities. 2 3 4 5 6 7 8 9 10 Transaction Owner invests $800 cash in business in exchange for stock Purchases $100 of supplies on credit Buys equipment for $400 cash Provides services for $900 cash Pays $400 cash for rent…arrow_forward
- Ratio analysis "up and down" is applied from which of the following directions? a) vertical relationships b) external and internal relationships c) horizontal relationships O d) Show relationships between financial statement accounts Jayarrow_forwardEffect of transactions on various financial ratios Indicate the effect that eachtransaction/event listed here will have on the financial ratio listed opposite it, andprovide an explanation for your answer. Use 1 for increase, − for decrease, and (NE)for no effect. Assume that current assets exceed current liabilities in all cases, bothbefore and after the transaction/event.Transaction/Event Financial Ratioa. Purchased inventory on account.b. Sold inventory for cash, at a profi t.c. Issued a 10% stock dividend.d. Issued common stock for cash.e. Sold land at a gain.f. Purchased treasury stock for cash.g. Accrued interest on a note payable.h. Accrued wages that have been earnedby employees.i. Purchased equipment for cash.j. Issued bonds at an interest rate that isless than the company’s ROI.Number of days’ sales in inventoryInventory turnoverEarnings per shareDebt ratioReturn on investmentDebt/equity ratioTimes interest earnedCurrent ratioPlant and equipment turnoverReturn on equityarrow_forwardPlease briefly describe an income statement, statement of cash flows, and balance sheet. Please describe a hypothetical pro forma income statement. Please describe the five types of financial ratio analyses. Please provide and briefly discuss 1 ratio from each of the five types of analysis. Apply these same ratios to the financial statements of a firm of your choice, except those that we formerly addressed in any way in the course.arrow_forward
- The following transactions occurred during a recent year: a. Paid wages of $1,450 for the current period (example). b. Borrowed $7,250 cash from local bank using a short-term note. c. Purchased $2,900 of equipment on credit. d. Earned $580 of sales revenue; collected cash. e. Received $1,160 of utilities services, on credit. f. Earned $2,450 of service revenue, on credit. g. Paid $435 cash on account to a supplier. h. Incurred $100 of travel expenses; paid cash. i. Earned $580 of service revenue; collected half in cash, with balance on credit. j. Collected $160 cash from customers on account. k. Incurred $420 of advertising costs; paid half in cash, with balance on credit. Required: 1. For each of the transactions, complete the following table, indicating the account, amount, and direction of the effect (+ for increase and - for decrease) of each transaction under the accrual basis. Include revenues and expenses as subcategories of stockholders' equity, as shown for the first…arrow_forwardIn performing vertical analysis, we express each item in a financial statement as a percentage of a base amount. What base amount is commonly used for income statement accounts? For balance sheet accounts?arrow_forwardConsider the following company’s balance sheet and income statement Return on assets. Return on equity.arrow_forward
- Financial AccountingAccountingISBN:9781337272124Author:Carl Warren, James M. Reeve, Jonathan DuchacPublisher:Cengage LearningManagerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College PubCollege Accounting, Chapters 1-27AccountingISBN:9781337794756Author:HEINTZ, James A.Publisher:Cengage Learning,
- Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax CollegeFinancial Accounting: The Impact on Decision Make...AccountingISBN:9781305654174Author:Gary A. Porter, Curtis L. NortonPublisher:Cengage LearningCornerstones of Financial AccountingAccountingISBN:9781337690881Author:Jay Rich, Jeff JonesPublisher:Cengage Learning
![Text book image](https://www.bartleby.com/isbn_cover_images/9781337272124/9781337272124_smallCoverImage.gif)
![Text book image](https://www.bartleby.com/isbn_cover_images/9781337912020/9781337912020_smallCoverImage.jpg)
![Text book image](https://www.bartleby.com/isbn_cover_images/9781337794756/9781337794756_smallCoverImage.gif)
![Text book image](https://www.bartleby.com/isbn_cover_images/9781305654174/9781305654174_smallCoverImage.gif)
![Text book image](https://www.bartleby.com/isbn_cover_images/9781337690881/9781337690881_smallCoverImage.gif)