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Traveler Magazine

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P15-25A Effects of business transactions on selected ratios [30–40 min]
Financial statement data of American Traveler Magazine include the following items:

Cash  23,000
Accounts receivable, net  79,000
Inventories  184,000
Total assets  634,000
Accounts payable  104,000
Accrued liabilities  40,000
Short term notes payable  47,000
Long term liabilities  221,000
Net income   74,000
Common shares outstanding  60,000

1. Compute American Traveler’s current ratio, debt ratio, and earnings per
share. Round all ratios to two decimal places

2. Compute the three ratios after evaluating the effect of each transaction that follows.
Consider each transaction separately

a. Purchased inventory of $49,000 on account.
b. Borrowed $122,000 on a long-term note payable.
c. Issued 6,000 shares of common stock, receiving cash of $103,000.
d. Received cash on account, $3,000.

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