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Q1) Number of transactions follow that affect specific division within multiple-division company. For each transaction described, indicate whether transaction would increase (IN), decrease (D), have no effect (N) or have an indeterminate (I) effect on following measures: asset turnover, profit margin, ROI, and RI for the present fiscal year. Each transaction is independent:

 

a. Division prepares down inventory of obsolete finished goods. Journal entry is:
Cost of Goods Sold 80,000
Finished Goods Inventory 80,000

 

b. Special overseas order is accepted. Sales price for this order is well below sales price on normal business but is sufficient to cover all costs traceable to this order.

 

c. Piece of equipment is sold for $150,000. Equipment's original cost was $900,000. At the time of sale, book value of equipment is $180,000. Sale of equipment has no effect on product sales.

 

d. Division fires its R 7 D manager. Manager will not be replaced during current fiscal year.

 

e. Company raises it target rate of return for this division from 10 to 12 percent.

 

f. At midyear, divisional manager decides to increase scheduled annual productions by 1,000 units. This decision has no effect on scheduled sales.

 

g. In the year, division manager spends additional $250,000 on advertising. Sales immediately increase thereafter.

 

h. Divisional manager replaced labor-intensive operation with machine technology. This action has no effect on sales, but total annual expenses of operation are expected to decline by 10 percent.

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