QUESTION #2 PLEASE P14-36A Effect of transactions on ratios (Learning Objective

Question

QUESTION #2 PLEASE

P14-36A Effect of transactions on ratios (Learning Objective 4) Financial statement data of Pacific Traveler magazine include the following items (dollars in thousands): Cash. Accounts receivable, net...... Inventories........ Total assets ............. Short-term notes payable ......... Accounts payable................... Accrued liabilities ............. Long-term liabilities.............. Net income........... Common shares outstanding.. $ 24,500 $ 83,000 $180,500 $660,000 $ 49,500 $106,000 $ 44,500 $182,800 $ 63,180 54,000 Requirements 1. Compute Pacific Traveler's current ratio, debt ratio, and earnings per share. Round all ratios to two decimal places 2. Compute the three ratios after evaluating the effect of each transaction that follows. Consider each transaction separately. a. Purchased inventory on account, $75,000 b. Borrowed $264,000 on a long-term note payable e.Issued 6,750 shares of common stock, receiving cash of $210,000 d. Received cash on account, $20,500

Explanation / Answer

1 a Current Ratio Current Assets / current Liabilities 288000 / 200000 1.44 b Debt ratio Total liabilities / total assets 382800 / 660000 0.58 c Net income / number of shares 63180 /54000 1.17 Current assets Cash                24,500 Accounts receivables                83,000 Inventories              180,500 Total Current assets              288,000 Current liabilities Short term notes payable                49,500 Accounts payables              106,000 accrued liabilities                44,500 Total Current Liabilities              200,000 Long term liabilities              182,800 Total Liabilities              382,800 2 Current ratio Debt ratio EPS a Purchased Inventory on account                     1.32                     0.62 No effect effect Current assets 288000+75000              363,000 Current liabilities 200000+75000              275,000 Total Liabilities 382800+75000              457,800 Total Assets 660000+75000              735,000 b Current ratio Debt ratio EPS Borrowed long term note payables                     2.76                     0.70 No effect 552000/200000 effect Current assets 288000+264000              552,000 Total Liabilities 382800+264000              646,800 Total Assets 660000+264000              924,000 c Current ratio Debt ratio EPS Issued shares and received cash                     2.49                     0.44 1.04 4980000/200000 382800/870000 63180/60750 effect Current assets 288000+210000              498,000 Shares 54000+6750 60750 Total Assets 660000+210000              870,000 d Current ratio Debt ratio EPS Received cash on account No change No change No change effect Current assets Received from debtors so no change

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