Module 5 Homework Continued Use complete sentences. Show and label all work to r

Question

Module 5 Homework Continued Use complete sentences. Show and label all work to receive any credit for the homework 4. Barb Dwyer, owner of "Fencing for You" has questions for you regarding the financial results of the company. The return on sales ratio is 25% and the gross margin ratio is 65%. Barb Dwyer is concerned that she may not be as profitable as she should be. She has read in the fencing industry journal "The Fence Post" that others in the industry have higher ratios. She asks that you explain the effects of the following transactions on her ratios a. Purchase of fence wire b. Billing a customer on account. c. Paying her employees on pay day d. Receiving the utility bill for electricity e. Purchasing a new post hole digger f. Borrowing $5,000 cash from the bank g. Barb Dwyer puts $3,000 cash in the company account from her personal account.

Explanation / Answer

a. It will decrease both the ratios as purchase has increased.

b. It will increase both the ratios as sales has increased.

c. No effect on Gross margin, However return on sales will decrease as net profit decreases

d. No effect on Gross margin, However return on sales will decrease as net profit decreases due to utility bill

e. No effect on Gross margin, However utility will decrease as net profit decreases due to depreciation

f. This wont affect any ratios because income statement is not affected

g. Again this wont affect any ratios because income statement is not affected

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