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.
$\begin{array}{|l|l|}\hline \text { (a) } & \begin{array}{l}\text { A supplier raised by 3\% the purchase price of several products sold by Lindsay. Lindsay } \\\text { did not change its sales prices for these products. } \\\text { Gross profit rate\underline{\quad\quad} Current liabilities }\underline{\quad\quad}\end{array} \\\hline \text { (b) } & \begin{array}{l}\text { Lindsay began purchasing larger than normal quantities from a particular supplier in } \\\text { order to receive a "volume discount." } \\\text { Gross profit rate \underline{\quad\quad}Quick ratio }\underline{\quad\quad}\end{array} \\\hline \text { (c) } & \begin{array}{l}\text { Lindsay has consistently earned a return on assets of } 15 \% \text {. Recently the company } \\\text { borrowed money at an interest rate of } 10 \% \text { to expand its operations. Lindsay expects its } \\\text { investment of these borrowed funds to earn a return (operating income) of } 20 \% . \\\text { Return on assets \underline{\quad\quad}Debt ratio }\underline{\quad\quad}\end{array} \\\hline \text { (d) } & \begin{array}{l}\text { Lindsay extended the credit terms allowed to customers buying merchandise on account } \\\text { from 30 days to 90 days. } \\\text { Net sales \underline{\quad\quad} Cash collected from customers:} \\\text { Dollar amount of gross profit (over the next 90 days) } \underline{\quad\quad}\\\text { Dollar amount of gross profit (after the next 90 days) }\underline{\quad\quad}\end{array} \\\hline\end{array}$

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Definitions:

Flat Cells

A type of cell with a thin, flat shape, often found in layers lining surfaces such as the skin or blood vessels; also known as squamous cells.

Organ System

Group of related organs working together; examples are the digestive and endocrine systems.

Muscular

Relating to or constituting muscle or muscles, particularly regarding strength, appearance, or the ability to perform physical tasks.

Nervous

relating to the nerves or nervous system, or described as easily agitated or anxious.