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Expert-verified Found in: Page 844 ### Horngren'S Financial And Managerial Accounting

Book edition 6th
Author(s) Tracie L. Miller-Nobles, Brenda L. Mattison
Pages 992 pages
ISBN 9780134486833

# Determining the effects of business transactions on selected ratios Financial statement data of Style Traveler Magazine include the following items:Cash$23,000Accounts Receivable, Net81,000Merchandise Inventory185,000Total Assets635,000Accounts Payable99,000Accrued Liabilities37,000Short-term Notes Payable51,000Long-term Liabilities224,000Net Income68,000Common Shares Outstanding20,000 shares Requirements Compute Style Traveler’s current ratio, debt ratio, and earnings per share. Round all ratios to two decimal places, and use the following format for your answer:Current Ratio Debt Ratio Earnings per Share2. Compute the three ratios after evaluating the effect of each transaction that follows. Consider each transaction separatelyPurchased merchandise inventory of$49,000 on the account. Borrowed $127,000 on a long-term note payable.Issued 2,000 shares of common stock, receiving cash of$107,000. Received cash on account, $5,000.  S. no. Current Ratio Debt ratio Earnings per share 1 1.54 .64$3.40 2a 1.43 .67 $3.40 2b 2.22 .70$3.40 2c 2.12 .55 $3.09 2d 1.55 .65$3.40
See the step by step solution

## Step 1: Meaning of Current Ratio

The current ratio is the ratio that determines the efficiency of a business. The current ratio is one of the most helpful liquidity ratios in the financial analysis since it allows for assessing a company's liquidity situation.

## Step 2: (1) Computing various ratios

Preparing extract of Balance sheet

 Company ST Extract of balance sheet Assets Amount ($) Liabilities Amount ($) Current asset: Current liabilities: Cash 23,000 Accounts payable 99,000 Account receivable 81,000 Accrued liabilities 37,000 Merchandise inventory 185,000 Short term payable 51,000 Total current asset 289,000 Total current liabilities 187,000 Long term liabilities 224,000 Total liabilities 411,000

Compute the current ratio for Company ST Compute the debt ratio for Company ST Compute the earnings per share for Company ST ## Step 3: (2) Computing three ratios considering the effect in each transaction

a. Purchased merchandise inventory of $49,000 on the account. Compute the current ratio of the or Company ST Compute the debt ratio for Company ST Compute the earning per ratio for Company ST b. Borrowed$127,000 on a long-term note payable

Compute the current ratio of the or Company ST Compute the debt ratio for Company ST Compute the earning per ratio for Company ST c. Issued 2,000 shares of common stock, receiving cash of $107,000 Compute the current ratio of the or Company ST Compute the debt ratio for Company ST Compute the earning per ratio for Company ST d. Received cash on account,$5,000

Compute the current ratio of the or Company ST Note: Received $5,000 cash on account increases the cash balance and decreases the accounts receivable by$5000. Cash and accounts receivable are current assets, so this transaction's effect is NIL on current assets.

Compute the debt ratio for Company ST Compute the earning per ratio for Company ST  ### Want to see more solutions like these? 