Question

ack 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, 8.50 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 starting in September, and collected six months’ fees in advance, amounting to $26,500.
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.
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.)

For each listed transaction and related adjusting entry, indicate the accounts, amounts, and effects on the accounting equation. (Do not round intermediate calculations. Round your answers to the nearest whole dollar. Enter any decreases to assets, liabilities, or stockholders equity with a minus sign. Enter your answers in transaction order provided in the problem statement.)

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	Date Assets = Liabilities + Stockholders' Equity Apr. 30 Cash 660,000 Notes Payable (short-term) 660,000 June 6 Inventories 80,000 Accounts Payable 80,000 July 15 Cash (80,000) Accounts Payable (80,000) Aug. 31 Cash 26,500 Deferred Revenue 26,500 Dec. 31 Salaries and Wages Expense (45,000) Dec. 31 Interest Expense Interest Expense Dec. 31 Deferred Revenue Service Revenue

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.)

	Date Effect on Ratio Numerator Denominator Apr. 30 June 6 July 15 Aug. 31 Dec. 31 Dec. 31 Dec. 31

Answer 1

1.

Date	Assets		=	Liabilities		+	Stockholders' Equity
Apr. 30	Cash	6,60,000		Notes Payable (short-term)	6,60,000
Jun-06	Inventories	80,000		Accounts Payable	80,000
Jul-15	Cash	-80,000		Accounts Payable	-80,000
Aug. 31	Cash	26,500		Deferred Revenue	26,500
Dec. 31				Salaries and Wages Payable	45,000		Salaries and Wages Expense	-45,000
Dec. 31				Interest Payable	37,400		Interest Expense	-37,400
Dec. 31				Deferred Revenue	-17,667		Service Revenue	17,667

Date	Effect on Ratio	Numerator	Denominator
Apr. 30	Increase	Increase	Increase
Jun-06	Increase	Increase	Increase
Jul-15	Decrease	Decrease	Decrease
Aug. 31	Increase	Increase	Increase
Dec. 31	Increase	Increase	No effect
Dec. 31	Increase	Increase	No effect
Dec. 31	Decrease	Decrease	No effect