Effects of Events on Financial Measurements
Indicate the Probable Effects

question 56

Essay

Effects of events on financial measurements
Indicate the probable effects of each of the following strategies or events upon the financial measurements of Lindsay Corp. listed below. Use the code letters I = Increase, D = Decrease, and NE = No Effect.
$\begin{array}{|l|l|}\hline \text { (a) } & \begin{array}{l}\text { A supplier raised by 3\% the purchase price of several products sold by Lindsay. Lindsay } \\\text { did not change its sales prices for these products. } \\\text { Gross profit rate\underline{\quad\quad} Current liabilities }\underline{\quad\quad}\end{array} \\\hline \text { (b) } & \begin{array}{l}\text { Lindsay began purchasing larger than normal quantities from a particular supplier in } \\\text { order to receive a "volume discount." } \\\text { Gross profit rate \underline{\quad\quad}Quick ratio }\underline{\quad\quad}\end{array} \\\hline \text { (c) } & \begin{array}{l}\text { Lindsay has consistently earned a return on assets of } 15 \% \text {. Recently the company } \\\text { borrowed money at an interest rate of } 10 \% \text { to expand its operations. Lindsay expects its } \\\text { investment of these borrowed funds to earn a return (operating income) of } 20 \% . \\\text { Return on assets \underline{\quad\quad}Debt ratio }\underline{\quad\quad}\end{array} \\\hline \text { (d) } & \begin{array}{l}\text { Lindsay extended the credit terms allowed to customers buying merchandise on account } \\\text { from 30 days to 90 days. } \\\text { Net sales \underline{\quad\quad} Cash collected from customers:} \\\text { Dollar amount of gross profit (over the next 90 days) } \underline{\quad\quad}\\\text { Dollar amount of gross profit (after the next 90 days) }\underline{\quad\quad}\end{array} \\\hline\end{array}$

---

Definitions:

Consideration

Something of value exchanged between parties in a contract, making the agreement legally binding.

Quantum Meruit

A legal principle that means "as much as he deserves," used to determine fair compensation for services rendered without a specific contract.

Estoppel

A legal principle that prevents a person from arguing something contrary to a claim or a statement they have previously made and on which another party has relied.

Consideration

Something of value that is given by both parties to a contract that induces them to enter into the agreement to exchange mutual performances.