In the right-hand column below, certain financial ratios are listed. To the left of each ratio is a businesstransaction or event relating to the operating activities of Delta Company (each transaction should be considered independently).Business Transaction or Event Ratio1. Declared a cash dividend. Current ratio2. Sold inventory on account at cost. Acid-test ratio3. Issued bonds with an interest rate of 8%. The company’s Return on commonreturn on assets is 10%. stockholders’ equity4. Net income decreased by 10% between last year and this Times interest earnedyear. Long-term debt remained unchanged.5. Paid a previously declared cash dividend. Current ratio6. The market price of the company’s common stock dropped Dividend payout ratiofrom $24.50 to $20.00. The dividend paid per share remainedunchanged.7. Obsolete inventory totaling $100,000 was written off as a loss. Inventory turnover ratio8. Sold inventory for cash at a profi t. Debt-to-equity ratio9. Changed customer credit terms from 2/10, n/30 to 2/15, n/30 Accounts receivableto comply with a change in industry practice. turnover ratio10. Issued a stock dividend to common stockholders. Book value per share11. The market price of the company’s common stock increased Book value per sharefrom $24.50 to $30.00.12. Paid $40,000 on accounts payable. Working capital13. Issued a stock dividend to common stockholders. Earnings per share14. Paid accounts payable. Debt-to-equity ratio15. Purchased inventory on account. Acid-test ratio16. Wrote off an uncollectible account against the Allowance Current ratiofor Bad Debts.17. The market price of the company’s common stock Price-earnings ratioincreased from $24.50 to $30.00. Earnings per shareremained unchanged.18. The market price of the company’s common stock increased Dividend yield ratiofrom $24.50 to $30.00. The dividend paid per share remainedunchanged.Required:Indicate the effect that each business transaction or event would have on the ratio listed opposite to it. Statethe effect in terms of increase, decrease, or no effect on the ratio involved, and give the reason for youranswer. In all cases, assume that the current assets exceed the current liabilities both before and after theevent or transaction. Use the following format for your answers:Effect on Ratio Reason for Increase, Decrease, or No Effect
In the right-hand column below, certain financial ratios are listed. To the left of each ratio is a business
transaction or event relating to the operating activities of Delta Company (each transaction should be considered independently).
Business Transaction or Event Ratio
1. Declared a cash dividend. Current ratio
2. Sold inventory on account at cost. Acid-test ratio
3. Issued bonds with an interest rate of 8%. The company’s Return on common
return on assets is 10%. stockholders’ equity
4. Net income decreased by 10% between last year and this Times interest earned
year. Long-term debt remained unchanged.
5. Paid a previously declared cash dividend. Current ratio
6. The market price of the company’s common stock dropped Dividend payout ratio
from $24.50 to $20.00. The dividend paid per share remained
unchanged.
7. Obsolete inventory totaling $100,000 was written off as a loss. Inventory turnover ratio
8. Sold inventory for cash at a profi t. Debt-to-equity ratio
9. Changed customer credit terms from 2/10, n/30 to 2/15, n/30 Accounts receivable
to comply with a change in industry practice. turnover ratio
10. Issued a stock dividend to common stockholders. Book value per share
11. The market price of the company’s common stock increased Book value per share
from $24.50 to $30.00.
12. Paid $40,000 on accounts payable. Working capital
13. Issued a stock dividend to common stockholders. Earnings per share
14. Paid accounts payable. Debt-to-equity ratio
15. Purchased inventory on account. Acid-test ratio
16. Wrote off an uncollectible account against the Allowance Current ratio
for
17. The market price of the company’s common stock Price-earnings ratio
increased from $24.50 to $30.00. Earnings per share
remained unchanged.
18. The market price of the company’s common stock increased Dividend yield ratio
from $24.50 to $30.00. The dividend paid per share remained
unchanged.
Required:
Indicate the effect that each business transaction or event would have on the ratio listed opposite to it. State
the effect in terms of increase, decrease, or no effect on the ratio involved, and give the reason for your
answer. In all cases, assume that the current assets exceed the current liabilities both before and after the
event or transaction. Use the following format for your answers:
Effect on Ratio Reason for Increase, Decrease, or No Effect
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