Asked by Elvia Padilla on Jul 12, 2024
Verified
Determine the effect of the following transactions on the identified financial statement components and ratios.Code your answers as follows:
A: If the transaction results in an increase in the financial statement component or ratio.
B: If the transaction results in a decrease in the financial statement component or ratio.
C: If the transaction does not affect the financial statement component or ratio.
Transaction 1: A company paid for research and development costs incurred to develop a patent.
Net income _____
Property,plant,and equipment _____
Stockholders' equity _____
Net profit margin ratio _____
Transaction 2: Inventory was purchased on account.
Net income _____
Current assets _____
Current liabilities _____
Return on assets ratio _____
Property, Plant, and Equipment
Property, Plant, and Equipment (PP&E) are tangible, long-term assets used in the operation of a business, not intended for resale.
Net Income
The amount of money that remains from revenues after all expenses, taxes, and costs have been subtracted; a measure of profitability.
Net Profit Margin Ratio
A financial ratio indicating the percentage of net income generated from total revenue.
- Assess the effect of transactions, sales, and expenses on net profit, gross income, and shareholders' equity.
- Assess the effect of various transactions on the net profit margin and how decisions regarding operations impact financial ratios.
Verified Answer
Net income B
Property,plant,and equipment C
Stockholders' equity B
Net profit margin ratio B
Transaction 2: Inventory was purchased on account.
Net income C
Current assets A
Current liabilities A
Return on assets ratio B
Learning Objectives
- Assess the effect of transactions, sales, and expenses on net profit, gross income, and shareholders' equity.
- Assess the effect of various transactions on the net profit margin and how decisions regarding operations impact financial ratios.
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