Accounting: Effects of Transactions on Ratios a. Sold merchandise on account - C

Question

Accounting: Effects of Transactions on Ratios a. Sold merchandise on account - Current ratio effect would be Increase, Decrease, or None b. Sold merchandise on account - Inventory turnover would be Increase, Decrease, or None c. Collected on accounts receivable - Quick ratio would be Increase, Decrease, or None d. Wrote off an uncollectible acct = Receivable turnover would be Increase, Decrease, or None e. Paid on accounts payable - current ratio would be increase, decrease, or none f. Declared cash dividend - return on equity would be increase, decrease or none g. Incurred advertising expense - profit margin would be increase, decrease or none h. issued stock dividend = debt to equity ration would be increase, decrease or none i. Issued bonds payable/ asset turnover would be increase, decrease or none j. accrued interest expense/current ratio would be increase, decrease or none k. paid previously declared cash dividend would be increase, decrease or none l. purchased treasury stock/ return on assets would be increase, decrease or none m. recorded depreciation expense/ cash flow yield would be increase, decrease or none

Explanation / Answer

A - Sold merchandise on account Current ratio effect would DECREASE as there is an increase in liability. B -Sold merchandise on account Inventory turnover would INCREASE as it leads to lowering of the level of closing inventory thereby reducing Average Inventory. Inventory Turnover - COGS / Average Inventory C - Collected on accounts receivable Quick ratio would be UNAFFECTED as Accounts Receivables are converted to cash, which has no effect on Quick Assets. D - Wrote off an uncollectible acct Receivable turnover would INCREASE as it leads to lowering of the level of closing Accounts Receivables thereby reducing Average Accounts Receivables. E - Paid on accounts payable Current ratio would be UNAFFECTED as Current Assets and Liabilities decrease by the same amount F - Declared cash dividend return on equity would be UNAFFECTED as dividends declared has no effect on R.O.E. G - Incurred advertising expense Profit margin would DECREASE as there is an increase in expenses. H - issued stock dividend debt to equity ration would DECREASE as the value of outstanding common stock increases. I - Issued bonds payable asset turnover would DECREASE as it would lead to an increase in assets if it is issued for cash. J - accrued interest expense current ratio would DECREASE as there will be an increase in Current Liabilities. K - Information missing L - purchased treasury stock return on assets would be UNAFFECTED as there is no change in Total Assets M - recorded depreciation expense cash flow yield would INCREASE as it will increase the free cash flow per share.

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