Question

Jack Hammer Company completed the following transactions. The annual accounting period ends December 31. Apr. 30 Received $720,000 from Commerce Bank after signing a 12-month, 6.50 percent, promissory note. June 6 Purchased merchandise on account at a cost of $85,000. (Assume a perpetual inventory system.) July 15 Paid for the June 6 purchase. Aug. 31 Signed a contract to provide security service to a small apartment complex starting in September, and collected six months' fees in advance, amounting to $29,000. Dec. 31 Determined salary and wages of $50,000 were earned but not yet paid as of December 31 (ignore payroll taxes). Dec. 31 Adjusted the accounts at year-end, relating to interest. Dec. 31 Adjusted the accounts at year-end, relating to security service. Required: 1. For each listed transaction and related adjusting entry, indicate the accounts, amounts, and effects on the accounting equation. 2. For each item, indicate whether the debt-to-assets ratio is increased or decreased or there is no change. (Assume Jack Hammer's debt-to-assets ratio is less than 1.0.) Complete this question by entering your answers in the tabs below. Required 1 Required 2 For each listed transaction and related adjusting entry, indicate the accounts, amounts, and effects on the accounting equation. (Do not round dollar. Enter any decreases to assets, liabilities, or stockholders equity with a minus sign. Enter your answers in transaction order provided in

Any help appreciated, Thank you!

Answer 1

Solution:

1)Amount, accounts effect on accounting equation:

= Date 30th April 6th June 15th July 31st August 31st December 31st December 31st December Assets Cash Inventory Cash Cash NE $720,000 $85,000 ($85,000) $29,000 + Liabilities Notes Payable Accounts Payable Accounts Payable Unearned Revenue Wages Payable Interest Payable Unearned Revenue $720,000 $85,000 ($85,000) $29,000 $50,000 $31,200 ($19,333) + Shareholder's Equity Working + NE + NE NE + NE + Salaries and Wage Expense ($50,000) Interest Expense ($31,200) (720,000*6.5%*8/12) Service Revenue $19,333 (29,000*4/6) = + NE NE - +

2)Effect on Debt to asset Ratio:

Date Effect on Ratic Numerator 30th April Increased Increased 6th June Increased Increased 15th July Decreased Decreased Denominator Reason As the debt-to asset ratio is less than 1, any increase in assets and Increased liabilties by the same amount would increase the debt assets ratio. As the debt-to asset ratio is less than 1, any increase in assets and Increased liabilties by the same amount would increase the debt assets ratio. As the debt-to asset ratio is less than 1, any decrease in assets and Decreased liabilties by the same amount would decrease the debt assets ratio. As the debt-to asset ratio is less than 1, any increase in assets and Increased liabilties by the same amount would increase the debt assets ratio. As the debt-to asset ratio is less than 1, Increase in liabilities without No Effect corresponding increase in assets will increase debt assets ratio. As the debt-to asset ratio is less than 1, Increase in liabilities without No Effect corresponding increase in assets will increase debt assets ratio. As the debt-to asset ratio is less than 1, Decrease in liabilities without No Effect corresponding decrease in assets will decrease debt assets ratio. 31st August Increased Increased 31st December Increased Increased 31st December Increased Increased 31st December Decreased Decreased