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Effects of events on financial ratios

The following balances were taken from the October 31, 2008, balance sheet of Hewlett-Packard (dollars in millions).

Current assets

$51,728

Long-term assets

61,603

Current liabilities

52,939

Long-term liabilities

21,450

Shareholders” equity

38,942

Early in fiscal 2009, Hewlett-Packard considered the financial effects of several events.

REQUIRED:

For each of the five events listed here, indicate how they would affect the financial ratios listed by completing the following chart. Assume that financial statements are prepared immediately after each event. Treat each event independently, and use the following key: Increase (+), Decrease (–), and No Effect (NE).

Net Income Shareholders”

Current Assets Current Liabilities

Total Liabilities Shareholders” Equity

1. Purchase inventory on account.

2. Sell assets for cash at a gain.

3. 2. Provide services to customers, receiving
cash in return.

4. Make a principal payment on an

Outstanding Long term liability.

5. Issue common stock for cash.

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