Analyzing Cash Flow Ratios Molly Enterprises reported the following information
ID: 2480975 • Letter: A
Question
Analyzing Cash Flow Ratios Molly Enterprises reported the following information for the past year of operations: For each transaction, indicate whether the ratio will Increase, Decrease, or have No Effect.
Transaction Free
Cash Flow
$250,000 Operating-Cash-Flow-to-
Current Liabilities Ratio
1.0 times Operating-Cash-Flow-to-
Capital Expenditures Ratio
3.0 times a. Recorded credit sales of $5,000 AnswerIncreaseDecreaseNo Effect AnswerIncreaseDecreaseNo Effect AnswerIncreaseDecreaseNo Effect b. Collected $3,000 owed from customers AnswerIncreaseDecreaseNo Effect AnswerIncreaseDecreaseNo Effect AnswerIncreaseDecreaseNo Effect c. Purchased $20,000 of equipment on long-term credit AnswerIncreaseDecreaseNo Effect AnswerIncreaseDecreaseNo Effect AnswerIncreaseDecreaseNo Effect d. Purchased $15,000 of equipment for cash AnswerIncreaseDecreaseNo Effect AnswerIncreaseDecreaseNo Effect AnswerIncreaseDecreaseNo Effect e. Paid $4,000 of wages with cash AnswerIncreaseDecreaseNo Effect AnswerIncreaseDecreaseNo Effect AnswerIncreaseDecreaseNo Effect f. Recorded utility bill of $1,500 that has not been paid AnswerIncreaseDecreaseNo Effect AnswerIncreaseDecreaseNo Effect AnswerIncreaseDecreaseNo Effect
Explanation / Answer
Free Cash Flow Operating cash flow to current liabilities ratio Operating cash flow to capital expenditures ratio a. Recorded credit sales of $ 5,000 No Effect No Effect No Effect b. Collected $ 3,000 owed from customers Increase Increase Increase c. Purchased $ 20,000 of equipment on long-term credit No Effect No effect No Effect d. Purchase $ 15,000 equipment with cash Decrease No effect Decrease e. Paid $ 4,000 of wages with cash Decrease Decrease Decrease f. Recorded utility bill of $ 1,500 that has not been paid No Effect Decrease No Effect
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