Indicate the effect that each transaction/event listed here will have on the financial ratio listed opposite it, and provide an explanation for your answer. Use + for increase, – for decrease, and (NE) for no effect. Assume that current assets exceed current liabilities in all cases, both before and after the transaction/event.
Transaction/Event Financial Ratio
a. Purchased inventory on account. .......... Number of days’ sales in inventory
b. Sold inventory for cash, at a profit.......... Inventory turnover
c. Issued a 10% stock dividend. ............ Earnings per share
d. Issued common stock for cash. ............ Debt ratio
e. Sold land at a gain. ................ Return on investment
f. Purchased treasury stock for cash. .......... Debt/equity ratio
g. Accrued interest on a note payable. ............ Times interest earned
h. Accrued wages that have been earned by employees. .. Current ratio
i. Purchased equipment for cash. .......... Plant and equipment turnover
j. Issued bonds at an interest rate that is less than the
company’s ROI. ............... Return on equity