Effects of accounting transactions
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Each of the following questions should have an answer that addresses total current assets, current ratio, and effect on net income relative to +, -, 0 and an explanation relative to the question.
What are the effects of these transactions + increase, - decrease, and 0 no effect, assuming a Current Ratio of more than 1 to 1:
Total Effect
Current Current on Net
Assets Ratio Income
---------------------------------------------
k. Marketable securities are sold below cost.
l. Advances are made to employees.
m. Current operating expenses are paid.
n. Short-term promissory notes are issued to
trade creditors in exchange for past due
accounts payable.
o. Ten-year notes are issued to pay off
accounts payable.
p. A fully depreciated asset is retired.
q. Accounts receivable are collected.
r. Equipment is purchased with short-term
notes.
s. Merchandise is purchased on credit.
t. The estimated taxes payable are increased.
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Each of the following questions should have an answer that addresses total current assets, current ratio, and effect on net income relative to +, -, 0 and an explanation relative to the question.
What are the effects of these transactions + increase, - decrease, and 0 no effect, assuming a Current Ratio of more than 1 to 1:
Total Effect
Current Current on Net
Assets Ratio Income
---------------------------------------------
k. Marketable securities are sold below cost.
- - -
Marketable securities and cash are both current assets. When marketable securities are sold below cost, it means that the company receives less cash. Therefore, both total current assets and current ratio will decrease. For net income, as it is sold at a discount, it will decrease the company's net income.
l. Advances are made to employees.
0 0 0
When advances are made to employees, the cash of the company will decrease, but the advances or salary receivable, which is regarded as the current assets also increase at the same amount. Therefore, both total current assets and current ratio will remain the same. For ...
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