Indicate the Effect of the Following Transactions On

question 12

Essay

Indicate the effect of the following transactions on:

i. Return on net operating assets (RNOA)
ii. Return on common shareholders' equity (ROCE)
iii. Earnings per share (basic)

Consider each transaction independently and explain your answer. Assume that ROCE is higher than RNOA.

1. Company issues more preferred stock and uses proceeds to reduce accounts payable.
2. Company has a stock split.
3. Company converts to just-in-time inventory system (JIT). This allows them to hold half the levels of inventory for the same amount of sales (sales themselves are not increased by this change to JIT).

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Definitions:

Partnership

A formally established way of running a business by two or more participants who equally handle the administration and profit-sharing.

Amount Debited

The total sum that has been recorded on the debit side of a company's accounts, reflecting an increase in assets or expenses, or a decrease in liabilities or equity.

Goodwill Method

The goodwill method involves assigning a value to the intangible benefits or assets of a company, like brand reputation, during an acquisition or merger.

Capital Balances

The amount of money that owners have invested in an entity, plus any retained earnings or subtracted losses.