Which of the following transactions will decrease both the return on assets ratio and the total asset turnover ratio?
A)Purchasing land by signing a note payable.
B)Accruing interest expense at year-end.
C)Accruing interest revenue at year-end.
D)Collecting cash from an account receivable.

Question

Quizplus · Accepted Answer

Purchasing land by signing a note payable will increase total assets but will not generate any additional revenue in the near term. This will decrease the total asset turnover ratio. Additionally, interest expense from the note payable will reduce net income, which will decrease the return on assets ratio.

Which of the Following Transactions Will Decrease Both the Return