ACC 305 - Assignmnent

week_one_ex_3_20_1.xlsx

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Sheet1

	Exercise 3-20
	The only method to ascertain the answers to these ratio questions, other
	than guessing is to calculate the effect on the ratio.
	I have set up the following values that will be used to calculate the ratios:
	Trial Balance
	Cash	2000
	Accounts receivable	2000
	Investments	2500
	Prepaids	3000
	Inventories	4000
	Equipment	2500
	Current liabilities	2000
	Total liabilities	10000
	Total shareholders equity	20000
	Below, I place the ratio formula in each cell. Note that I place a $ before the column letter and
	a $ before the row number. This is so the formula will not change when I copy the formula down to the
	other actions.
	I review the action and ascertain what accounts would be affected by the action, and then
	I the change the amounts above in the trial balance to ascertain the effect of the "action" on the ratio
	For example: Issuance of long term bonds will increase cash and increase long term liabilities.
	I will change cash from 1000 to 2000 and total liabilities from 9000 to 10,000
	When you change cash and total liabilities, the current ratio changes from 6.25 to 6.75 it increased
	The Acid test ratio changed from 2.75 to 3.25, it increased.
	The Debt to Equity ratio changed from .45 to to .5, it increased.
	Action	Current Ratio	I/D/No effect	Acid Test Ratio	I/D/No effect	Debt to Equity Ratio	I/D/No effect
1	Issuance of long term bonds	6.75	I	3.25	I	0.5	No effect
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 four year note
7	Retirement of bonds
8	Sale og 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