What effect will transaction (b)have on the net profit margin ratio and the debt-to-assets ratio?
A)Net profit margin ratio will be unaffected and the debt-to-assets ratio will increase.
B)Net profit margin ratio will increase and the debt-to-asset ratios will not be affected.
C)Net profit margin ratio will be unaffected and the debt-to assets ratio will decrease.
D)Net profit margin ratio will decrease and the debt-to-assets ratio will increase.

Question

Quizplus · Accepted Answer

Transaction (b) is a purchase of equipment with debt. This will increase the debt-to-assets ratio, as debt is increasing and assets are not. Net profit margin will be unaffected, as this ratio is calculated as net income divided by sales, and neither of these is affected by the transaction.

What Effect Will Transaction (B)have on the Net Profit Margin