Question

Exercise 3-20 (Static) Effect of management decisions on ratios (LO3-8) Most decisions made by management impact the ratios analysts use to evaluate performance Indicate (by letter) whether each of the actions listed below will immediately increase ((. decrease (D), or have no effect (N) on the ratios shown. Assume each ratio is less than 10 before the action is taken. Current Ratio Acid-Test Ratio Debt to Equity Ratio Action D D 1. Issuance of long-term bonds 2. Issuance of short-term notes 3. Payment of accounts payable 4. Purchase of inventory on account 5. Purchase of inventory for cash 6. Purchase of equipment with a 4-year note 7. Repayment of long-term notes payable 8. Issuance of common stock 9. Payment for advertising expenses 10 Purchase of short-term investment for cash 11. Reclassification of long-term notes payable to current notes payable nces

Answer 1

item	current ratio	acid test ratio	debt to equity ratio
1	I	I	I
2	I	I	I
3	D	D	D
4	I	D	I
5	N	D	N
6	N	N	I
7	D	D	D
8	I	I	D
9	D	D	N
10	N	N	N
11	I	I	N