Indicate the effects (increase, decrease or no effect) of each of the following

Question

Indicate the effects (increase, decrease or no effect) of each of the following independent transactions on: 1 the rate of relum on shareholders' equity 2 the current 3 the debt-to-equity. State any necessary assumptions. a Inventory costing $410 000 is purchased on account. b Inventory costing $240 000 is sold on account for $300 000. c Collections from customers on accounts receivable total $ 100 000. d Payments to suppliers on accounts payable total $ 160 000. e A machine costing $80 000, on which $60 000 of depreciation was charged, is sold for $20 000. f Dividends of $80000 are declared. The dividends will be paid during the next accounting period, g Ordinary shares are issued for $ 175 000. h A machine costing $60000 is acquired. Cash of $10000 is given, and a note for $50000 payable five years from now is signed for the balance of purchase price.

Explanation / Answer

Rate of return

on shareholders' equity

Transaction

Rate of return

on shareholders' equity

Current ratio Debt to equity ratio a No Effect no effect Increase b No effect No effect No Effect c No effect No effect No effect d No effect No effect Decrease e no effect Increase No effect f No effect Decrease No effect g Decrease No effect Decrease h No effect No effect increase

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