Financial Information for Problems 3&4 BALANCE SHEET Cash Accts. Receivable Inve

Question

Financial Information for Problems 3&4 BALANCE SHEET Cash Accts. Receivable Inventories Total current assets S 1,0000 Accounts payable $ 1,000.0 2,000.0 500.0 $3,500.0 5,000.0 $8,500.0 500.0 11,000,0 $11,500.0 $20,000.0 3,000.0 Notes payable 1,000.0 Accruals S5,000.0 Total current liabilities Long-term bonds Total debt Common stock (5,000 shares) Retained earnings Total common equity Total liabilities & equity Net plant & equip. Tocal assets 15,000.0 $20,0000 NCOME STATEMENT Net sales Cost of Goods Sokd Depreciation EBIT Less: Interest EBT Less: Taxes Net income S 10,000.0 5,000.0 2.000.0 S 3,000.0 600.0 S 2,400.0 500.0 S 1,900.0 Problem #3 Consider the following changes to the company's balance sheet and income statement to determine the impact and state increase (+), decrease ), or no change (0). (1 point each line 15 points total) Total Current Assets Current Ratio Effect on Current Year Net Income A fixed asset with a book value of $1000 is sold for $2000 cash. Rent expense for the current year is accrued for S500. Merchandise with a cost of $100 is sold for $200 cash. Rent expense for the prior year is paid with cash You buy 10 shares of stock in this company of $500 from the company

Explanation / Answer

Total Current Asset Current Ratio Effect on Current Year net Income Explanation 1 + + + Cash increase hence current asset and current ratio increase . As the asset is sold at profit net income increase 2 0 - - No change in current asset as only current liabilities increases hence current ratio decrease as it is expense net income decrease 3 + + + Inventory sold at profit cash increase is more than decrease in inventory hence current asset increase hence current ratio increase and net income increase due to profit on sale 4 - - 0 Current asset decrease due to cash outflow and also current ratio decrease .net profit have no chages because its is prior expense 5 + + 0 Cash increase by issue of shares hence current and current ratio increase.

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