Effect of various transactions on financial statement ratios Indicate the effects (increase, decrease, no effect) of the following independent transactions on (1) earnings per share, (2) working capital (= current assets — current liabilities), and (3) the quick ratio, where accounts receivable are included but merchandise inventory is excluded from quick assets State any necessary assumptions.
a. A firm sells for $300,000, on account, merchandise inventory costing $240,000
b. A firm declares dividends of $160,000. It will pay the dividends during the next accounting period.
c. A firm purchases, on account, merchandise inventory costing $410,000.
d. A firm sells for $20,000 a machine costing $80,000 and with accumulated depreciation of $60,000.
e. Because of defects, a firm returns to the supplier merchandise inventory purchased for $1,000 cash. The firm receives a cash reimbursement.
f. A firm issues 10,000 shares of $10 par value common stock on the last day of the accounting period for $15 per share. It uses the proceeds to acquire the assets of another firm composed of the following: accounts receivable. $30,000; merchandise inventory, $60,000; plant, and equipment, $100,000. The acquiring firm also agrees to pay current liabilities of $40,000 of the acquired company.

  • CreatedDecember 03, 2011
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