Indicate the effects of the transactions listed in the following table on total current assets, current ratio, and net income. Use (+) to indicate an increase, (−) to indicate a decrease, and (0) to indicate either no effect or an indeterminate effect. Be prepared to state any necessary assumptions and assume an initial current ratio of more than 1.0.
Total |
Current |
Effect |
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a. Cash is acquired through issuance of additional |
Current |
Ratio |
on Net |
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common stock. |
Assets |
Income |
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b. Merchandise is sold for cash. |
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c. Federal income tax due for the previous year is paid. |
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d. A fixed asset is sold for less than book value. |
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e. A fixed asset is sold for more than book value. |
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f. Merchandise is sold on credit. |
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g. Payment is made to trade creditors for previous |
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purchases. |
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h. A cash dividend is declared and paid. |
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Total Current Assets |
Current Ratio |
Effect on Net Income |
i. |
Cash is obtained through short term bank loans. |
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j. |
Short term notes receivable are sold at a discount. |
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k. |
Marketable securities are sold below cost. |
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l. |
Advances are made to employees. |
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m. |
Current operating expenses are paid. |
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n. |
Short term promissory notes are issued to trade |
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creditors in exchange for past due accounts payable. |
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o. |
10 year notes are issued to pay off accounts payable. |
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p. |
A fully depreciated asset is retired. |
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q. |
Accounts receivable are collected. |
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r. |
Equipment is purchased with short term notes. |
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s. |
Merchandise is purchased on credit. |
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t. |
The estimated taxes payable are increased. |
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