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[CMACPA]

Indicate the effects of each of the following transactions on the following ratios. There are three
possible answers: increase (+), decrease (-), and no effect (0). Before each transaction occurs, the
current ratio is greater than 1 to 1, and the acid-test ratio is less than 1 to 1.
Current Ratio
Acid-test Ratio
Debt Ratio
ROS
ROA
EPS

(a) Sell merchandise for cash
(b) Buy inventory for cash
(c) Pay an account payable
(d) Borrow cash on a short-term loan
(e) Purchase plant assets for cash
(f) Issue long-term bonds payable
(g) Collect an account receivable
(h) Record accrued expenses payable
(i) Sell a plant asset for cash at a profit
(j) Sell a plant asset for cash at a loss
(k) Buy marketable securities for cash
(l) Declare and issue a stock dividend
(m) Purchase treasury stock for cash
Acquire land by issuing common stock
(o) Write off an uncollectible account receivable

 

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(a) Sell merchandise for cash:

• Current Ratio: Increase (+)
• Acid-test Ratio: No effect (0)

(b) Buy inventory for cash:

• Current Ratio: Decrease (-)
• Acid-test Ratio: Decrease (-)

(c) Pay an account payable:

• Current Ratio: No effect (0)
• Acid-test Ratio: No effect (0)

(d) Borrow cash on a short-term loan:

• Current Ratio: No effect (0)
• Acid-test Ratio: No effect (0)

(e) Purchase plant assets for cash:

• Current Ratio: No effect (0)
• Acid-test Ratio: No effect (0)

(f) Issue long-term bonds payable:

• Current Ratio: No effect (0)
• Acid-test Ratio: No effect (0)

(g) Collect an account receivable:

• Current Ratio: No effect (0)
• Acid-test Ratio: No effect (0)

(h) Record accrued expenses payable:

• Current Ratio: No effect (0)
• Acid-test Ratio: No effect (0)

(i) Sell a plant asset for cash at a profit:

• Current Ratio: Increase (+)
• Acid-test Ratio: No effect (0)

(j) Sell a plant asset for cash at a loss:

• Current Ratio: Decrease (-)
• Acid-test Ratio: No effect (0)

(k) Buy marketable securities for cash:

• Current Ratio: Decrease (-)
• Acid-test Ratio: No effect (0)

(l) Declare and issue a stock dividend:

• Current Ratio: No effect (0)
• Acid-test Ratio: No effect (0)

(m) Purchase treasury stock for cash:

• Current Ratio: Decrease (-)
• Acid-test Ratio: No effect (0)

Acquire land by issuing common stock:

• Current Ratio: No effect (0)
• Acid-test Ratio: No effect (0)

(o) Write off an uncollectible account receivable:

• Current Ratio: No effect (0)
• Acid-test Ratio: No effect (0)