Evaluating the Impact of Typical Transactions
After finishing her first year of operations, Nicole used the debt-to-assets, asset turnover, and net profit margin ratios to determine how effective she was in running the business. Listed here are a few company transactions from the past quarter that may have influenced these ratios.
a. Acquired, but haven’t yet paid for, equipment costing $320.
b. Recorded spa treatment revenues of $1,500 on account.
c. Incurred advertising expense of $40, paid in cash.
d. Accrued $750 for utility bills.
e. Received $50,000 cash from an investor in exchange for company shares.
f. Received $2,500 cash by signing a note payable.
g. Recorded $1,800 in depreciation expense.
h. Customers used $200 of gift certificates to pay for spa services.
Required:
1. Complete the following table, indicating the effects (account, amount, and direction) of each transaction. Use + for increase, - for decrease, and NE for no effect.
Transaction | Assets | Liabilities | Stockholders’ Equity |
a | Â | Â | Â |
etc. | Â | Â | Â |
2. Complete the following table, indicating the sign ( + for increase, - for decrease, and NE for no effect) for each transaction. Assume that, prior to recording items (a)–(h), Nicole’s Getaway Spa had more assets than liabilities, more revenues than net income, and more revenues than average assets.
Transaction | Debt-to-Assets | Asset Turnover | Net Profit Margin |
a | Â | Â | Â |
etc. | Â | Â | Â |