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    Effect of Various Transactions on Financial Statement Ratios

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    Effect of various transactions on financial statement ratios. Indicate the immediate effects (increase, decrease, no effect) of each of the following independent transactions on (1) the rate of return on common shareholders' equity, (2) the current ratio, and (3) the liabilities to assets ratio. State any necessary assumptions.
    a. A firm purchases, on account, merchandise inventory costing $205,000.
    b. A firm sells for $150,000, on account, merchandise inventory costing $120,000.
    c. A firm collects $100,000 from customers on accounts receivable.
    d. A firm pays $160,000 to suppliers on accounts payable.
    e. A firm sells for $10,000 a machine costing $40,000 and with accumulated depreciation of $30,000.
    f. A firm declares dividends of $80,000. It will pay the dividends during the next accounting period.
    g. A firm issues common stock for $75,000.
    h. A firm acquires a machine costing $60,000. It gives $10,000 cash and signs a note for $50,000 payable five years from now for the balance of the purchase price.

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    Solution Summary

    a. A firm purchases, on account, merchandise inventory costing $205,000.
    b. A firm sells for $150,000, on account, merchandise inventory costing $120,000.
    c. A firm collects $100,000 from customers on accounts receivable.
    d. A firm pays $160,000 to suppliers on accounts payable.
    e. A firm sells for $10,000 a machine costing $40,000 and with accumulated depreciation of $30,000.
    f. A firm declares dividends of $80,000. It will pay the dividends during the next accounting period.
    g. A firm issues common stock for $75,000.
    h. A firm acquires a machine costing $60,000. It gives $10,000 cash and signs a note for $50,000 payable five years from now for the balance of the purchase price

    $2.19

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