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

Exercise 20

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.	Purchased inventory on account.	Number of days’ sales in inventory
b.	Sold inventory for cash, at a profit.	Inventory turnover
c.	Issued a 10% stock dividend.	Earnings per share
d.	Issued common stock for cash.	Debt ratio
e.	Sold land at a gain.	Return on investment
f.	Purchased treasury stock for cash.	Debt/equity ratio
g.	Accrued interest on a note payable.	Times interest earned
h.	Accrued wages that have been earned by employees.	Current ratio
i.	Purchased equipment for cash.	Plant and equipment turnover
j	1ssued bonds at an interest rate that is less than the company’s ROI.	Return on equity