Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall

Exercise 14

Effect of transactions on various financial ratios Indicate the effect that each transaction/event listed here will have on the financial ratio listed opposite it, and provide an explanation for your answer. Use + for increase, - for decrease, and (NE) for no effect. Assume that current assets exceed current liabilities in all cases, both before and after the transaction/event.

	Transaction/Event	Financial Ratio
a.	Split the common stock 2 for 1.	Book value per share of common stock
b.	Collected accounts receivable.	Number of days’ sales in accounts receivable
c.	Issued common stock for cash.	Total asset turnover
d.	Sold treasury stock.	Return on equity
e.	Accrued interest on a note receivable.	Current ratio
f.	Sold inventory on account.	Acid-test ratio
g.	Wrote off an uncollectible account.	Accounts receivable turnover
h.	Declared a cash dividend.	Dividend yield
i.	Incurred operating expenses.	Margin
i	Sold equipment at a loss.	Earnings per share