Question

CP 13 – 6 In the left‐hand column, a series of independent transactions is listed; in the right‐hand column, a series of ratios is listed. Effect on ratio No Transaction Ratio Increase Decrease change Wrote‐off an uncollectible account receivable Accounts receivable collection period Issued 10‐year bonds to acquire plant assets Return on total assets Declared a stock dividend on common shares Earnings per share Paid a current creditor in full Acid‐test ratio Required: For each transaction indicate whether the ratio will increase, decrease, or remain unchanged. Assume all ratios are greater than 1:1 before each transaction where applicable. Declared a cash dividend Current ratio Purchased inventory on account Acid‐test ratio Issued additional stock for cash Debt to stockholders’ equity ratio

CHAPTER THIRTEEN Financial Statement Analysis CP 13-6 Effect on ratio No Dec. change Ratio Current ratio Accounts receivable collectiorn periad Acid-test ratio nc. Transaction Declared a cash dividend Wrote-offT an uncollectible account recevable Purchased inventory on account Issued 10-year bands to acquire capitalReturn on total assets assets Issued additional shares for cash Debt to stockholders' equity Declared a stock dividend on common shares Restricted part of retained earnings Purchased supplies on account Paid a short-term creditor in full Earnings per share Return on stockholders' equity Current ratio Acid-test ratio Number of days sales in inventory Paid an account payable, taking the cash discount CHAPTER THIRTEEN/Financial Statement Analysis First uS Edition 495

Answer 1

Transaction	Ratio	Inc	Dec	No change
1	Current Ratio		Decrease
2	AR Collection Period		Decrease
3	Acid Test Ratio		Decrease
4	Return on total assets		Decrease
5	Debt to equity ratio		Decrease
6	EPS		Decrease
7	Return on Equity			No Change
8	Current Ratio			No Change
9	Acid Test Ratio			No Change
10				No Change

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