Which of the following transactions will decrease both the return on assets ratio and the 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 with a note payable will increase total assets, which will decrease both the return on assets (net income/total assets) and asset turnover (sales/total assets) ratios. Accruing interest expense at year-end will decrease the return on assets ratio but will not affect the asset turnover ratio. Accruing interest revenue at year-end will increase the return on assets ratio but will not affect the asset turnover ratio. Collecting cash from an accounts receivable will increase both the return on assets and asset turnover ratios.

Which of the Following Transactions Will Decrease Both the Return