Question

E10-5 Determining the Impact of Current Liability Transactions, including Analysis of the Debt-to-Assets Ratio [LO 10-2, LO 10-5) Bryant Company sells a wide range of inventories, which are initially purchased on account. Occasionally, a short-term note payable is used to obtain cash for current use. The following transactions were selected from those occurring during the year. a. On January 10, purchased merchandise on credit for $28,000. The company uses a perpetual Inventory system. b. On March 1, borrowed $60,000 cash from City Bank and signed a promissory note with a face amount of $60,000, due at the end of six months, accruing interest at an annual rate of 9.00 percent, payable at maturity. Required: 1. For each of the transactions, indicate the accounts, amounts, and effects on the accounting equation. (Enter any decreases to account balances with a minus sign.) Assets Liabilities Stockholders' Equity Date January 10 March 1 2. What amount of cash is paid on the maturity date of the note? Cash Paid 3. Indicate the impact of each transaction (increase, decrease, and NE for no effect) on the debt-to-assets ratio. Assume Bryant Company had $500,000 in total liabilities and $700,000 in total assets, yielding a debt-to-assets ratio of 0.71, prior to each transaction. (Round your answer to 2 decimal places.) impact a. b.

Answer 1

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Bryant Company
Answer 1
Date	Assets	=	Liabilities	+	Stockholder's Equity	Reason
January 10	28,000.00		28,000.00			Inventory is purchased on credit. So current asset and current liability will increase.
March 1	60,000.00		62,700.00		(2,700.00)	Borrowings will increase current asset and current liability. $ 2,700 is finance charges. See answer 2.
Answer 2	Amount $
Borrowing amount	60,000.00		D
Annual interest rate	9%		E
Annual interest amount	5,400.00		F=D*E
Interest for 6 months	2,700.00		G=F/12*6
Amount to be paid	62,700.00		H=D+G
	A		B		C=B/A
Answer 3	Total Liabilities		Total Assets		Debt to Assets Ratio	Impact
Current	500,000.00		700,000.00		0.71
January 10	28,000.00		28,000.00
Revised Total	528,000.00		728,000.00		0.73	Increase
March 1	62,700.00		60,000.00
Revised Total	590,700.00		788,000.00		0.75	Increase