Chapter 10, Problem 1PA

Determining Financial Effects of Transactions Affecting Current Liabilities with Evaluation of Effects on the Debt-to-Assets Ratio

Jack Hammer Company completed the following transactions. The annual accounting period ends December 31.

Apr. 30	Received $600,000 from Commerce Bank after signing a 12-month, 6 percent, promissory note.
June 6	Purchased merchandise on account at a cost of $75,000. (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 $24,000.
Dec. 31	Determined salary and wages of $40,000 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. 1. For each listed transaction and related adjusting entry, indicate the accounts, amounts, and effects (+ for increase, − for decrease, and NE for no effect) on the accounting equation, using the following format:

1. 2. For each item, state 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.)