Explanation The table below represents the effect of given transactions, Total Current Assets Current Ratio Effect on Net Income Justification a. Cash is acquired through issuance of additional common stock. + + 0 Increase in cash leads to an increase in total current assets and current ratio while there is no effect on the net income. b. Merchandise is sold for cash. 0 0 + Merchandise and cash both are current assets, as one increases and other decreases, therefore there is no effect on current assets and current ratio, but the net income will increase. c. Federal income tax due for the previous year is paid. ˗˗ + 0 Current liability and current assets decreases with the payment of income tax due for previous year, which leads toa decrease in current asset, increase in current ratiobut there are no changes in net income. d. A fixed asset is sold for less than book value. + + ˗˗ Cash increases with sale of fixed asset, therefore increase in current assets leads to an increase in current ratio, but thenet income will decrease due to loss. e. A fixed asset is sold for more than book value. + + + Cash increases with the sale of fixed asset, therefore the increase in current assets leads to an increase in current ratio and net income will also increase due to gain on sale of fixed asset. f. Merchandise is sold on credit. 0 0 + Merchandise is a current asset and sale of it on credit will leads to an increase in account receivables and decrease in merchandise, as one increases and other decreases, therefore there is no effect on current assets and current ratio but the net income will increase. g. Payment is made to trade creditors for previous purchases. ˗˗ + 0 Current liability and current assets decreases with the payment to trade creditors due for the previous purchase, which leads to a decrease in current assets, increase in current ratio but there is no change in the net income. h. A cash dividend is declared and paid ˗˗ ˗˗ 0 Cash decreases with the payment of dividend leads to a decrease in current assets and current ratio but there is no change in the net income. i. Cash is obtained through short-term bank loans. + ˗˗ 0 Increase in cash through short-term loans leads to an increase in total current assets and current liability, which decreases the current ratio while there is no effect on net income. j. Short-term notes receivables are sold at a discount. ˗˗ ˗˗ ˗˗ Increase in cash through sale of short-term notes leads to an increase in one current assets and decrease in another current asset, which decreases the current assets, current ratio and net income as the sale is on discount...

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Question

Chapter 4, Problem 12Q

Summary Introduction

To indicate: The effect of the given transactions on total assets, current ratio and net income.

Introduction:

Financial Ratio Analysis: Financial ratio analysis is one of the tools of financial analysis of a firm. It represents the relationship between two or more items of the financial statement.

Expert Solution & Answer

Chapter 4 Solutions

FUND.OF FINANCIAL MGMT:CONCISE-MINDTAP

Ch. 4 - Financial ratio analysis is conducted by three...Ch. 4 - Prob. 2Q Ch. 4 - Over the past year, M.D. Ryngaert Co. had an...Ch. 4 - Profit margins and turnover ratios vary from one...Ch. 4 - How does inflation distort ratio analysis...Ch. 4 - If a firms ROE is low and management wants to...Ch. 4 - Give some examples that illustrate how (a)...Ch. 4 - Prob. 8Q Ch. 4 - Suppose you were comparing a discount merchandiser...Ch. 4 - Prob. 10Q

Ch. 4 - Differentiate between ROE and ROIC.Ch. 4 - Prob. 12Q Ch. 4 - DAYS SALES OUTSTANDING Baxley Brothers has a DSO...Ch. 4 - DEBT TO CAPITAL RATIO Kayes Kitchenware has a...Ch. 4 - DuPONT ANALYSIS Hendersons Hardware has an ROA of...Ch. 4 - MARKET/BOOK AND EV/EBITDA RATIOS Edelman Engines...Ch. 4 - PRICE/EARNINGS RATIO A company has an EPS of 2.40,...Ch. 4 - DuPONT AND ROE A firm has a profit margin of 3%...Ch. 4 - ROE AND ROIC Baker Industriess net income is...Ch. 4 - DuPONT AND NET INCOME Precious Metal Mining has 17...Ch. 4 - Prob. 9P Ch. 4 - M/B, SHARE PRICE, AND EV/EBITDA You are given the...Ch. 4 - RATIO CALCULATIONS Assume the following...Ch. 4 - Prob. 12P Ch. 4 - TIE AND ROIC RATIOS The W.C Pruett Corp. has...Ch. 4 - RETURN ON EQUITY Pacific Packagings ROE last year...Ch. 4 - RETURN ON EQUITY AND QUICK RATIO Lloyd Inc. has...Ch. 4 - Prob. 16P Ch. 4 - CONCEPTUAL: RETURN ON EQUITY Which of the...Ch. 4 - TIE RATIO MPI Incorporated has 6 billion in...Ch. 4 - CURRENT RATIO The Stewart Company has 2,392,500 in...Ch. 4 - DSO AND ACCOUNTS RECEIVABLE Ingraham Inc....Ch. 4 - P/E AND STOCK PRICE Ferrell Inc. recently reported...Ch. 4 - Prob. 22P Ch. 4 - RATIO ANALYSIS Data for Barry Computer Co. and its...Ch. 4 - DuPONT ANALYSIS A firm has been experiencing low...Ch. 4 - Prob. 25SP Ch. 4 - Prob. 26IC Ch. 4 - CONDUCTING A FINANCIAL RATIO ANALYSIS ON HP INC....Ch. 4 - CONDUCTING A FINANCIAL RATIO ANALYSIS ON HP INC....Ch. 4 - CONDUCTING A FINANCIAL RATIO ANALYSIS ON HP INC....Ch. 4 - CONDUCTING A FINANCIAL RATIO ANALYSIS ON HP INC....

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To indicate: The effect of the given transactions on total assets, current ratio and net income. Introduction: Financial Ratio Analysis: Financial ratio analysis is one of the tools of financial analysis of a firm. It represents the relationship between two or more items of the financial statement.

Solution Summary: The author explains that financial ratio analysis is one of the tools of financial analysis of a firm.

To indicate: The effect of the given transactions on total assets, current ratio and net income. Introduction: Financial Ratio Analysis: Financial ratio analysis is one of the tools of financial analysis of a firm. It represents the relationship between two or more items of the financial statement.

Chapter 4 Solutions