Purpose: (L.O. 5) This exercise points out the effects of various transactions on selected computations and ratios.
The following list of transactions relate to the Huseman Corporation for 2014. You are to analyze the transactions assuming that on the date when each of the transactions occurred, the corporation's accounts showed only common stock (80,000 shares, $100 par) outstanding, a current ratio of 3.1 to 1 and a substantial net income for the year to date (before giving effect to the transaction concerned). Each numbered transaction 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 all amounts are material and all transactions were recorded in accordance with generally accepted accounting principles.
For each of the transactions, indicate the effect (increase, decrease or no effect) on each of the following:
(a) The corporation's net income for 2014.
(b) The corporation's current ratio.