Indicate the effect of the transaction listed below on each of the following: Wo

Question

Indicate the effect of the transaction listed below on each of the following: Working capital, current ratio, debt ratio, net income, stock holders equity. Increase Decrease or No effect. Assume an initial current ratio of more than 1 to 1.

Working Capital Current Ratio Debt Ratio Net Income Stockholders Equity

1. Cash dividend declared and paid.

2. Cash obtained through long term

bank loan. (do not consider interest)

3. Equipment is purchased with short

term notes. (do not consider interest)

4. A merchandise is purchased on

credit.

5.A fixed asset is sold for more than

book value.

6.A stock split takes effect.

7. Current operating expenses not

previously recognized are paid.

8. A firm makes a long term cash

investment in the stock of a

consolidated subsidiary.

9. A firm recgonizes depreciation

expense.

10. A firm refinances short term

notes with long-term notes.

(ignore interest)

Explanation / Answer

a. A cash dividend is declared and paid increase
b. Cash is obtained through long-term bank loans. (Do not consider interest). 0
c. Equipment is purchased with short-term notes. (Do not consider interest.)
d. Merchandise is purchased on credit. deacrese
e. A fixed asset is sold for more than book value. increase
f. A stock split takes effect. seacrease
g. Current operating expenses not pre- viously recognized are paid. 0
h. A firm makes a long-term cash investment in the stock of a consolidated subsidiary. 0
i. A firm recognizes depreciation expense. deacrese
j. A firm refinances short-term notes with long-term notes. (Ignore interest.) increase

Related Questions

Navigate

• Browse (All)
• Browse I
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.