Question
(Transaction effects on ratios) Two lists follow: one for ratios (including the ratio prior to the transactions) and another for transactions. Ratios: 1. Current
(Transaction effects on ratios) Two lists follow: one for ratios (including the ratio prior to the transactions) and another for transactions. Ratios: 1. Current ratio, 1.2:1 2. Quick ratio, 0.6:1 3. 4. Accounts receivable turnover, 12 times Inventory turnover, 6 times 5. Return on assets, 10% 6. Return on equity, 15% Transactions: 1. 2. 3. 4. 5. Goods costing $200,000 are sold to customers on credit for $380,000. Accounts receivable of $140,000 are collected. Inventory costing $110,000 is purchased from suppliers on account. A long-term bank loan for $500,000 is arranged with the bank, and the company receives the cash at the beginning of the year. The bank loan carries an interest rate of 18% and the interest payment is made at the end of the year. Assume no interest expense had previously been recognized. 6. The company uses $40,000 to buy short-term investments. 7. New common shares are issued for $250,000. State the immediate effect (increase de offect) of each transaction on each ratio.
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