Question

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

Apr. 30	Received $660,000 from Commerce Bank after signing a 12-month, 8.5 percent, promissory note.
June 6	Purchased merchandise on account at a cost of $80,000. (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 and collected six months’ fees in advance amounting to $26,500. (Use an account called Unearned Revenue.)
Dec. 31	Determined salary and wages of $45,000 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. (Do not round intermediate calculations. Enter any decreases to account balances with a minus sign. Enter your answers in transaction order provided in the problem statement.)

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.) (Enter your answers in transaction order provided in the problem statement.)

Answer 1

1)
Date	Assets	Total	=	Liabilities	Total	+	Stockholder's Equity	Total
Apr-30	DR Cash	$ 6,60,000.00		CR - Notes Payable - Commerce Bank	$ 6,60,000.00
Jun-06	Dr Inventory	$    80,000.00		CR - Accounts Payable	$    80,000.00
Jul-15	CR Cash	$    80,000.00		DR - Accounts Payable	$    80,000.00
Aug-31	DR Cash	$    26,500.00		CR - Unearned Service Revenue	$    26,500.00
Dec-31				CR Salary & Wages Payable	$    45,000.00		DR Salary & Wages Expense	$    45,000.00
Dec-31				CR Interest Payable	$    37,400.00		DR Interest Expense	$    37,400.00
Dec-31				DR - Unearned Service Revenue	$    17,666.67		CR. Service Revenue	$    17,666.67
Interest Expense = 660,000 x 8.5% x 8/12	$ 37,400.00
Unearned Service Revenue = 26500/6 x 4	$ 17,666.67
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.) (Enter your answers in transaction order provided in the problem statement.)
Transaction	Effect
April 30th	No Effect
June 6th	No Effect
July 15th	No Effect
August 31st	No Effect
December 31st	Decrease
December 31st	Decrease
December 31st	Increase