P 7-5 Individual transactions often have a significant impact on ratios. This pr

Question

P 7-5 Individual transactions often have a significant impact on ratios. This problem will consider the direction of such an impact. 0 Times Interest Earned Debt/Equity Ratio Debt to Tangible Net Worth Ratio Transaction Debt Ratio a. Purchase of buildings financed by mortgage. b. Purchase of inventory on short-term loan at 1% over prime rate. c. Declaration and payment of cash dividend. d. Declaration and payment of stock dividend e. Firm increases profits by cutting cost of sales f. A ppropriation of retained earnings. g. Sale of common stock. h. Repayment of long-term bank loan. i. Conversion of bonds to common stock outstanding. j. Sale of inventory at greater than cost. Required Indicate the effect of each of the transacti an increase,-to indicate a decrease, and 0 to indicate no effect. Assume an initial times in terest earned of more than 1, and a debt ratio, debt/equity ratio, and a total debt to tangible net worth of less than 1 ons on the ratios listed. Use +to indicate 0 3

Explanation / Answer

ans Times Interest Earned Debt ratio Debt/Equity Debt to tangible net worth a - + + + b - + + + c 0 + + + d 0 0 0 0 e + - - - f 0 0 0 0 g 0 - - - h + - - - i + - - - j + - - -

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