When a company sells a finished product, all else being equal, what is the immediate impact...

When a company sells a finished product, all else being equal, what is the immediate impact on…
… the Balance Sheet (4 pt)
… the Income Statement (4 pt)
… the Direct Cash Flow Statement (4 pt)

How does this affect the Quick Ratio? Does it increase, decrease, or stay the same? Why? (2 pt)
How does this affect the Current Ratio? Does it increase, decrease, or stay the same? Why? (2 pt)

Solutions

Expert Solution

Assuming Credit Sales impact is as follows :

The Balance Sheet - Assets increase
The Income Statement - Sales increases, Closing stock decreases, Balancing Figure Profit increase
The Direct Cash Flow Statement - Inflow due to Inventory sale nulled by decrease due to funds locked in receivables
How does this affect the Quick Ratio? Does it increase, decrease, or stay the same? Why?
No impact since current assets stays the same.
How does this affect the Current Ratio? Does it increase, decrease, or stay the same?
No change since current assets stay the same.

Assuming Cash Sales impact is as follows :

The Balance Sheet - Assets increase (in cash)
The Income Statement - Sales increases, Closing stock decreases, Balancing Figure Profit increase
The Direct Cash Flow Statement - Inflow due to Inventory sale - resulting in increase in cash
How does this affect the Quick Ratio? Does it increase, decrease, or stay the same? Why?
Inventory is quick asset, just like cash, hence no change.
How does this affect the Current Ratio? Does it increase, decrease, or stay the same?
Since current assets inventory is replaced by cash, no change.

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

When there is an increase in the value of the Japanese yen, all else equal: A.American...

When there is an increase in the value of the Japanese yen, all else equal: A.American businesses will see a decrease in demand for their goods in the United States only. B.American businesses will see a decrease in demand for their goods in the United States and in foreign countries. C.American businesses will see a decrease in the supply of their goods in the United States and in foreign countries. D.American businesses will see an increase in demand for their...

It is generally true that when the price of a good is increased (all else equal)...

It is generally true that when the price of a good is increased (all else equal) the quantity demanded of that good will decline and the revenue from the sales of the good will also decline. There are exceptions, however, where price increases result in a reduction in the quantity demanded but revenue increases. Explain in detail the types of situations in which the exceptions occur. Define all the relevant terms

3. All else being equal, one would expect the energy consumption to be related to the...

3. All else being equal, one would expect the energy consumption to be related to the amount of CO2 emissions. The energy consumption of buildings per unit area per unit time is measured as energy use intensity given in MJ/ft2/year. The CO2 emissions are measured in metric tons per capita per year (T/person/year). The data on the building energy consumption and CO2 emissions values for a sample of 15 zip-codes is shown in the table below a. Find the...

20. Which of the following statements about a bond is true? All else being equal, the...

20. Which of the following statements about a bond is true? All else being equal, the lower the coupon rate on a bond, the higher the price of the bond The value of a bond cannot be traded in the market at its face value If the yield curve is downward sloping, long-term yields are lower than short-term yields because market interest rates are expected to decrease. If the yield curve is downward sloping, long-term yields are lower than short-term...

If all else is held equal, a decrease in the current ratio of a company is...

If all else is held equal, a decrease in the current ratio of a company is generally considered to be: 1) an indication that current liabilities have decreased 2) an indication that the company will have increased difficulty meeting short-term obligations 3) an indication that current assets have increased 4) an indication that the company will be better able to meet short-term debt obligations Low inventory turnover would indicate that 1) the company manages inventory effectively. 2) sales have exceeded...

When the protein comes out of the ribosome it may not be finished. What else may...

When the protein comes out of the ribosome it may not be finished. What else may be needed to be done to the protein and how is it done? (Hint, chaperones, sugars and more.)

5) All else being equal, if a nation decided to intervene in free trade anyways, which...

5) All else being equal, if a nation decided to intervene in free trade anyways, which of the following policy options would be most beneficial to the country and which would be the least beneficial? Please explain your answer clearly for full credit: Tariffs, Quotas and Voluntary Export Restraints

All else being equal, for rolling element bearings, which is more damaging? They are equivalent. outer...

All else being equal, for rolling element bearings, which is more damaging? They are equivalent. outer ring rotation. Stop worrying--they're both fine! inner ring rotation.

All else being equal, would you prefer to work in a tall or flat organization? Why?...

All else being equal, would you prefer to work in a tall or flat organization? Why? Which one do you think is best: a narrow span of control, or a wide span of control? How does the concept of span of control relate to tall/flat organizations? Justify your reasoning.

The "Law of Demand" says that, all else equal, A- None of these. B- When prices...

The "Law of Demand" says that, all else equal, A- None of these. B- When prices rise, people buy less. C- There are some products that people will always buy, no matter the price. D- When incomes go up, people buy more. A rightward shift of the whole demand curve means A- people want to buy less at every price. B- people want to buy more because the price went down. C- people want to buy more because the price...

Subjects