Determining and Interpreting the Effects of Transactions on Income Statement Categories and Return on Assets

Creative Technology, a computer hardware company based in Singapore, developed the modern standard for computer sound cards in the early 1990s. Recently, Creative has released a line of portable audio products to directly compete with Apple's popular iPod. Presented here is a recent income statement (dollars in millions).

Net sales                                                                                  $915

Costs and expenses

Cost of sales                                                                             737

Research and development                                                      64

Selling, general, and administrative                                        175

Operating income (loss)                                                           (61)

Interest and other income (expenses), net                              112

Income (loss) before provision (benefit) for income taxes      51

Provision (benefit) for income taxes                                        23

Net income (loss)                                                                     $ 28

Its beginning and ending assets were $393 and $409, respectively.

Required:

Listed here are hypothetical additional transactions. Assuming that they also occurred during the fiscal year, complete the following tabulation, indicating the sign of the effect of each additional transaction (+ for increase, − for decrease, and NE for no effect). Consider each item independently and ignore taxes.

a. Recorded sales on account of $500 and related cost of goods sold of $475.

b. Incurred additional research and development expense of $100, which was paid in cash.

c. Issued additional shares of common stock for $200 cash.

d. Declared and paid dividends of$90.

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Operating Income (Loss) Return on Assets Transaction Gross Profit a. b. C. d.