Most decisions made by to management impact the ratios


Most decisions made by management impact the ratios analysts use to evaluate performance.  Indicate (by letter) whether each of the actions listed below will immediately increase (I), decrease (D) or have no effect (N) on the ratios shown.  Assume each ratio is less than 1.0 before the action is taken.

 

Action

Current Ratio

Acid - Test

Ratio

Debt to

Equity Ratio

1.   Issuance of long-term bonds

 

 

 

 

2.   Issuance of short-term notes

 

 

 

 

3.   Payment of accounts payable

 

 

 

 

4.   Purchase of inventory on account

 

 

 

 

5.   Purchase of inventory for cash

 

 

 

 

6.   Purchase of equipment with a

         4-year note

 

 

 

 

7.   Retirement of bonds

 

 

 

 

8.   Sale of common stock

 

 

 

 

9.   Write-off of obsolete inventory

 

 

 

 

10.  Purchase of short-term investment for cash

 

 

 

 

11.  Decision to refinance on a long-term basis some currently maturing debt   

 

 

 

 

 

 

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Financial Accounting: Most decisions made by to management impact the ratios
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