Question

Indicate the effect of each of the following transactions on (1) the current ratio, (2) working capital, (3) stockholders’ equity, (4) book value per share of common stock, and (5) retained earnings. Assume that the current ratio is greater than 1:1. (Indicate the effect of each transactions by selecting "+" for increase, "–" for decrease, and "NC" for no change.)

1. Collected account receivable.

2. Wrote off account receivable.

3. Converted a short-term note payable to a long-term note payable.

4. Purchased inventory on account.

5. Declared cash dividend.

6. Sold merchandise on account at a profit.

7. Issued stock dividend.

8. Paid account payable.

9. Sold building at a loss.

Answer 1

Transaction	Current ratio	Working capital	Stock holders equity	Book value per share	Retained earnings
Collected account receivble	NC	NC	NC	NC	NC
Wrote of account receivble	-	-	NC	NC	-
Conversion of St debt to LT	+	+	NC	NC	NC
Purchased inventory on account	NC*	NC	NC	NC	NC*
Declared cash dividend.	-	-	NC	NC	NC
Sold merchandise on account at a profit.	+	+	NC	NC	+
Issued stock dividend	NC	NC	+	-	-
Paid account payable.	NC	NC	NC	NC	NC
Sold building at a loss.	+	+	nc	NC	-

* It is assumed that purchase is lying in stock , if it is treated as expenses, the current ratio will decrese, working capital will decrese, reatinied ernings will decrease