To provide a consistent frame of reference for the company's financial statements and ratios, assume that the following balance sheet and income statement reflect the company's pretransaction condition and performance.
Homework Answers
Transaction 1
The entry is :
Accounts receivable Debit 165,000
Sales Credit 165,000.
Only Accounts receivable and sales are affected.
Quick ratio, inventory turnover and debt ratio are affected.
Quick ratio will increase because accounts receivable will increase.
Inventory turnover will increase because sales will increase.
Debt ratio will decrease because total assets will increase.
The other ratios are not affected.
Transaction 2
The entry is :
Bank Debit 500,000
Loan Credit 500,000.
Only cash and long-term debt accounts are affected.
Debt ratio will be unchanged because debt and total assets have increased by the same amount.
Return on assets will decrease because total assets will increase.
Other ratios are not affected.
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To provide a consistent frame of reference for the company's financial statements and ratios
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