4-10      Indicate the effects of the transactions listed in the following table on total current assets, current ratio, and net income. Use (+) to indicate an increase, (-) to indicate a decrease, and (0) to indicate either no effect or an indeterminate effect. Be prepared to state any nec- essary assumptions and assume an initial current ratio of more than 1.0. (Note: A good ac- counting background is necessary to answer some of these questions; if yours is not strong, answer just the questions you can.)

 

 

 

 

 

a.  Cash is acquired through issuance of additional common stock.

b.  Merchandise is sold for cash.

 

Total Current Assets

 

 

Current Ratio

 

Effect on Net Income

 

c.  Federal income tax due for the previous year is paid.          

d.  A fixed asset is sold for less than book value.                    

e.  A fixed asset is sold for more than book value.                  

f.   Merchandise is sold on credit.

g.  Payment is made to trade creditors for previous purchases.

 

 

 

 

 

 

 

 

 

 

 

h.  A cash dividend is declared and paid.

 

Total Current Assets

 

 

Current Ratio

 

Effect on Net Income

 

i.   Cash is obtained through short-term bank loans.                

j.   Short-term notes receivable are sold at a discount.             

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.  10-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.