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(Effect of Transactions on Financial Statements and Ratios) The transactions listed below relate to Wainwright Inc. You are to assume that on the date on which each of the transactions occurred, the corporation鈥檚 accounts showed only common stock (\(100 par) outstanding, a current ratio of 2.7:1, and a substantial net income for the year to date (before giving effect to the transaction concerned). On that date, the book value per share of stock was \)151.53.

Each numbered transaction on the next page is to be considered completely independent of the others, and its related answer should be based on the effect(s) of that transaction alone. Assume that all numbered transactions occurred during 2018 and that the amount involved in each case is sufficiently material to distort reported net income if improperly included in the determination of net income. Assume further that each transaction was recorded in accordance with generally accepted accounting principles and, where applicable, in conformity with the all-inclusive concept of the income statement.

For each of the numbered transactions you are to decide whether it:

1. Increased the corporation鈥檚 2018 net income.
2. Decreased the corporation鈥檚 2018 net income.
3. Increased the corporation鈥檚 total retained earnings directly (i.e., not via net income).
4. Decreased the corporation鈥檚 total retained earnings directly.
5. Increased the corporation鈥檚 current ratio.
6. Decreased the corporation鈥檚 current ratio.
7. Increased each stockholder鈥檚 proportionate share of total stockholders鈥� equity.
8. Decreased each stockholder鈥檚 proportionate share of total stockholders鈥� equity.
9. Increased each stockholder鈥檚 equity per share of stock (book value).
10. Decreased each stockholder鈥檚 equity per share of stock (book value).
11. Had none of the foregoing effects.

Instructions

List the numbers 1 through 9. Select as many letters as you deem appropriate to reflect the effect(s) of each transaction as of the date of the transaction by printing beside the transaction number the letter(s) that identifies that transaction鈥檚 effect(s).

Transactions

1. In January, the board directed the write-off of certain patent rights that had suddenly and unexpectedly become worthless.

Step by step solution

01

Meaning of Ratio Analysis

Ratio analysis is a basic approach to assessing a company's health by examining the relationships between key financial indicators. Ratio analysis, according to many analysts, is the most important aspect of the analytical process

02

Mentioning the effect of the transaction

The following effects can be observed with the write-off of certain patent rights that were suddenly and unexpectedly voided by the Board of Directors:

1. Decreased the corporation鈥檚 2018 net income.
2. Decreased each stockholder鈥檚 equity per share of stock (book value)

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