Vivian’s Online Video currently has a return on assets of 10%. Indicate the effects of the following business transactions on the Vivian’s Online Video return on assets.

Consider each transaction independently of the others. Identify if the return on assets increases, decreases, or does not change. Explain your answer. Transaction

(a) is answered as a guide.

a. Purchased office furniture on account, $300.

Answer: Decreases. The increase in assets (office furniture) increases the denominator in the equation and therefore decreases the ratio.

b. Earned video rental revenue on account, $2,800.

c. Paid $100 cash to purchase office supplies.

d. Received cash of $10,000 from issuance of common stock.

e. Paid cash on account, $100.

f. Received cash on account, $400.