Individual transactions often have a significant impact on ratios. This problem will consider the direction of such an impact.

Ratio Transaction

Times Interest
Earned

Debt Ratio

Debt/ Equity
Ratio

Debt to Tangible
Net Worth

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. Appropriation 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 transactions on the ratios listed. Use + to indicate an increase, -to indicate a decrease, and 0 to indicate no effect.

Assume an initial times interest earned of more than 1, and a debt ratio, debt/equity ratio, and a total debt to tangible net worth of less than 1.