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Home / Questions / Shari’s Gift Store had the following events occur. Assume that immediately after each inde

Shari’s Gift Store had the following events occur. Assume that immediately after each inde

Shari’s Gift Store had the following events occur. Assume that immediately after each independent event, new financial statements were prepared. Indicate how each event would affect the company's financial leverage, current ratio, and debt to equity ratio. In the space provided, indicate an increase with I, a decrease with D, and no effect with X.

 

Financial

LeverageCurrent

RatioDebt to

Equity Ratio

a.Treasury stock is sold for cash___________________________

b.Goods are sold on credit to customers at less than cost

_________

_________

_________

c.Bonds payable (long-term debt) are paid off before their maturity date

_________

_________

_________

d.Cash dividends are declared and paid to shareholders

_________

_________

_________

e.New equipment is purchased on a 5-year note payable

_________

_________

_________

 

 

 

4.Levin Lumber Co. reported the following selected financial information:

 

Total assets$2,000

Total liabilities500

Retained earnings1,000

Sales3,600

Net income900

 

Required:

a.Compute return on assets.

b.Compute return on equity.

c.Explain the role of financial leverage in the results of parts (a) and (b).

Shari’s Gift Store had the following events occur. Assume that immediately after each independent event, new financial statements were prepared. Indicate how each event would affect the company's financial leverage, current ratio, and debt to equity ratio. In the space provided, indicate an increase with I, a decrease with D, and no effect with X.

 

Financial

LeverageCurrent

RatioDebt to

Equity Ratio

a.Treasury stock is sold for cash___________________________

b.Goods are sold on credit to customers at less than cost

_________

_________

_________

c.Bonds payable (long-term debt) are paid off before their maturity date

_________

_________

_________

d.Cash dividends are declared and paid to shareholders

_________

_________

_________

e.New equipment is purchased on a 5-year note payable

_________

_________

_________

 

 

 

4.Levin Lumber Co. reported the following selected financial information:

 

Total assets$2,000

Total liabilities500

Retained earnings1,000

Sales3,600

Net income900

 

Required:

a.Compute return on assets.

b.Compute return on equity.

c.Explain the role of financial leverage in the results of parts (a) and (b).

Dec 24 2019 View more View Less

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