Consider each of the following general journal entries. 
Required: Assume the company's return-on assets ratio is less than 1.0, debt-to-assets ratio is less than 1.0, and its return-on assets ratio is less than 1.0 before these transactions listed above took place. Consider the effect of each journal entry on these three ratios. Enter an "I" if the entry increases the ratio, a "D" if the ratio decreases the ratio, or "NC" if the ratio does not change as a result of a given transaction.
What will be an ideal response?
Return-on-assets ratio = Net income ÷ Total assets
Debt-to-assets ratio = Total debt ÷ Total assets
Return-on-equity ratio = Net income ÷ Total stockholders' equity
1) Debit to supplies increases total assets; credit to accounts payable increases total liabilities
2) Debit to rent expense increases expenses, which decreases net income and total stockholders' equity (retained earnings); credit to cash decreases total assets
3) Debit to cash increases total assets; credit to accounts receivable decreases total assets; the debit offsets the credit and there is no effect on total assets
4) Debit to dividends decreases total stockholders' equity (retained earnings); credit to cash decreases total assets
5) Debit to cash increases total assets; credit to common stock increases total stockholders' equity
6) Debit to accounts payable decreases total liabilities; credit to cash decreases total assets
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