Determine the Effect of the Following Transactions on the Financial

question 54

Essay

Determine the effect of the following transactions on the financial statements components identified.Code your answers as follows:
A: If the transaction results in an increase in the financial statement component or ratio.
B: If the transaction results in a decrease in the financial statement component or ratio.
C: If the transaction does not affect the financial statement component or ratio.
Transaction 1: A company sold inventory for an amount greater than its cost.
Gross profit _____
Current assets _____
Stockholders' equity _____
Transaction 2: Advertising expense was recorded but has yet to be paid for.
Net income _____
Gross Profit _____
Stockholders' equity _____

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Definitions:

Variable Cost

Costs that vary in total with changes in the level of production or other business activities.

Market Price

The existing cost for purchasing or selling an asset or service on the open market.

Purely Competitive Market

A market structure characterized by many buyers and sellers, all of whom sell identical products, which results in the agents having no control over prices.

Economic Profit

The difference between a firm's total revenue and its total costs, including both explicit and implicit costs.