Individual transactions often have a significant impact on ratios. This problem will consider the direction of such an impact.

Required

Indicate the effect of each of the transactions on the ratios listed. Use + to indicate an increase, – to indicate a decrease, and 0 to indicate no effect. Assume an initial times interest earned of more than 1, and a debt ratio, debt/equity ratio, and a total debt to tangible net worth of less than1.

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Times Interest Earned Debt/Equity Ratio Debt to Tangible Net Worth Ratio Transaction Debt Ratio a. Purchase of buildings financed by b. Purchase of inventory on short-term c. Declaration and payment of cash d. Declaration and payment of stock e. Firm increases profits by cutting cost mortgage loan at 1% over prime rate. dividend. dividend. of sales. Appropriation of retained earnings g. Sale of common stock. h. Repayment of long-term bank loan. i. Conversion of bonds to common stock j. Sale of inventory at greater than cost.