$6$:$3$ For each transaction below, record the effect of transaction using the information in balance sheet equations given.

Treat each transaction independently. Indicate the effect of each transaction $($i$.$e$.,$ increase, decrease, or no effect$)$ on the ratio indicated in the question. Please use the ratio definitions shown below. Ignore taxes.

$\backslash$table$[[$Ratio$,$Definition,Ratio Value Prior to Transaction$],[$Current Ratio,Current Assets $/$ Current Liabilities,$1\mathrm{.}00],[$Leverage Ratio,Total Liabilities$/$ Total Assets,$0\mathrm{.}50],[$Return on Assets,Net Income$/$ Ending Total Assets,$0\mathrm{.}10],[$Return on Equity,Net Income$/$ Ending Shareholders Equity,$0\mathrm{.}20]]$

The following transaction is given as an example.

Example: Recognized $$8,000$ of wage expense, of which $$2,500$ is paid in cash, and the remainder will be paid within one year.

$\backslash$table$[[$Current Assets,$+,$Non$-$Current Assets,$=,$Current Liabilities,$+,$Non$-$Current Liabilities,$+,$Shareholders Equity$],[-2,500,,,,5,500,,,,-8,000]]$

Answer:

Current Ratio: Increase $/$ Decrease $/$ Stay the Same

Return on Equity: Increase $/$ Decrease $/$ Stay the Same Part A

$7$ points possible $($graded$)$

Recorded $$11,100$ in depreciation expense.

Current Assets $+$ Non$-$Current $,$ Assets $,$ Contra Assets $,$ Liabilities $,+$ Retained Earnings

Current Ratio:

Increase

Decrease

No Effect

Return on Equity:

Increase

Decrease

No Effect $7$ points possible $($graded$)$

Sold common stock on the last day of the fiscal year for $$95,000$ in cash.

Current Ratio:

Increase

Decrease

No Effect

Return on Equity:

Increase

Decrease

No Effect Part C

$7$ points possible $($graded$)$

Recorded and paid $$11,700$ in interest expense.

Current Assets $+\{\begin{array}{ccc}\text{:}[& \text{N}\text{o}\text{n}-\text{C}\text{u}\text{r}\text{r}\text{e}\text{n}\text{t}& ]\\ & \text{A}\text{s}\text{s}\text{e}\text{t}\text{s}& \end{array}=$ Current Liabilities $+\{\begin{array}{ccc}\text{:}[& \text{N}\text{o}\text{n}-\text{C}\text{u}\text{r}\text{r}\text{e}\text{n}\text{t}& ]\\ & \text{L}\text{i}\text{a}\text{b}\text{i}\text{l}\text{i}\text{t}\text{i}\text{e}\text{s}& \end{array}+$ Retained Earnings

Current Ratio:

Increase

Decrease

No Effect

Return on Assets:

Increase

Decrease

No EffectPart D

$7$ points possible $($graded$)$

Recorded bad debt expense of $$10,100.$

Assets

Contra Assets $=$

Current Liabilities

Non$-$Current

Liabilities

Retained Earnings

Leverage Ratio:

Increase

Decrease

No Effect

Return on Assets:

Increase

Decrease

No Effect