Effects of events on financial ratios
The following balances were taken from the December 31, 2008, balance sheet of Time Warner (dollars in millions):
|
Current assets |
$16,602 |
|
Long-term assets |
97,294 |
|
Current liabilities |
13,976 |
|
Long-term liabilities |
57,632 |
|
Shareholders” equity |
42,288 |
Early in 2009, Time Warner considered the financial effects of several events.
REQUIRED:
For each of the five events listed here, indicate how they would affect the financial ratios listed by completing the following chart. Assume that financial statements are prepared immediately after each event. Treat each event independently, and use the following key: Increase (+), Decrease (–), and No Effect (NE).
|
Net Income Total Assets |
Current Assets Current Liabilities |
|
1. Purchase equipment in exchange |
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2. Pay cash for marketing its services |
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3. Sell equipment for an amount less than its book value |
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4. Pay wages that were accured in a previous period |
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5. Provide a service for which cash was collected in a previous period |