Business Transaction or Event Ratio Current ratio 1. Declared a cash dividend. 2. Sold inventory on account at cost. 3. Issued bonds with an interest rete of 8%. The company's return on assets is 10%. 4. Net income decreased by 10% between last year and this year. Long-term debt remained unchanged. 5. Paid a previously declared cash dividend. 6. The market price of the company's common stock dropped from $24.50 to $20.00. The dividend paid per share remeined unchanged. 7. Obsolete inventory totaling $100,000 was writen off as a loss. 8. Sold inventory for cash at a profit. 9. Changed customer crecit terms trom 2/10, n30 to 2/15, n/30 to comply with a change in Industry practice. 10. ksued a stock dividend to commen stockhoiders Acid-test ratio Retum on equity Times interest earned Current ratio Dividend payout ratio Inventory turnover ratio Debt-to-equity ratio Accounts receivable turnover ratio 11. The market price of the company's common stock increased from $24.50 to $30.00. 12. Peid $40,000 on accounts payabie. 13. Issued a stock dividend to common stockholders. 14. Paid accounts payoble. Book value per share Book value per share Working capital Earnings per share Debr-to-ecuity retio Acid-test ratio 15. Purchased inventory on account. 16. Wrote off an uncollectible account agoinst the Alowance for Bad Debts 17. The market price of the company's common stock increased from $24.50 to $30.00. Earnings per share remained unchanged. 18. The market price of the company's common stock increased from $24.50 to $30.00, The dividend paid per shore remained unchanged Current ratio Price-earnings ratio Dividend yigld ratio Effect on Ratio Reason for Increase, Decrease, or No Effect 1. Etc.

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

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:

Business Transaction or Event
Ratio
Current ratio
1. Declared a cash dividend.
2. Sold inventory on account at cost.
3. Issued bonds with an interest rete of 8%. The company's return on assets is 10%.
4. Net income decreased by 10% between last year and this year. Long-term debt remained
unchanged.
5. Paid a previously declared cash dividend.
6. The market price of the company's common stock dropped from $24.50 to $20.00. The
dividend paid per share remeined unchanged.
7. Obsolete inventory totaling $100,000 was writen off as a loss.
8. Sold inventory for cash at a profit.
9. Changed customer crecit terms trom 2/10, n30 to 2/15, n/30 to comply with a change in
Industry practice.
10. ksued a stock dividend to commen stockhoiders
Acid-test ratio
Retum on equity
Times interest earned
Current ratio
Dividend payout ratio
Inventory turnover ratio
Debt-to-equity ratio
Accounts receivable turnover ratio
11. The market price of the company's common stock increased from $24.50 to $30.00.
12. Peid $40,000 on accounts payabie.
13. Issued a stock dividend to common stockholders.
14. Paid accounts payoble.
Book value per share
Book value per share
Working capital
Earnings per share
Debr-to-ecuity retio
Acid-test ratio
15. Purchased inventory on account.
16. Wrote off an uncollectible account agoinst the Alowance for Bad Debts
17. The market price of the company's common stock increased from $24.50 to $30.00.
Earnings per share remained unchanged.
18. The market price of the company's common stock increased from $24.50 to $30.00, The
dividend paid per shore remained unchanged
Current ratio
Price-earnings ratio
Dividend yigld ratio

Effect on Ratio
Reason for Increase, Decrease, or No Effect
1.
Etc.

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