PB10-1 Determining Financial Effects of Transactions Affecting Current Liabiliti
ID: 2532527 • Letter: P
Question
PB10-1 Determining Financial Effects of Transactions Affecting Current Liabilities Tiger Company completed the following transactions. The annual accounting period ends December 31 Jan. 3 Purchased merchandise on account at a cost of $36,000. (Assume a perpetual inventory system.) Jan. 27 Paid for the January 3 purchase Apr. 1 Received $ June 13 Purchased merchandise on account at a cost of $10,400 July 25 Paid for the June 13 purchase. Aug 1 Rented out a small office in a building owned by Tiger Company and collected eight months' rent 92,000 from Atlantic Bank after signing a 12-month, 7 5 percent promissory note in advance amounting to $10,400. (Use an account called Unearned Rent Revenue.) Dec. 31 Determined wages of $24,000 were earmed but not yet paid on December 31 (ignore payroll Dec. 31 Adjusted the accounts at year-end, relating to interest Dec 31 Adjusted the accounts at year-end, relating to rent Required: taxes)Explanation / Answer
The debt to asset ratio measures the amount of total assets that are financed by creditors instead of investors.
Debt to Asset ratio = Total Debts / Total Assets
It tells you the percentage of total assets that were financed by creditors, liabilities, debt.
If Debt to assets ratio is less than 1, it means, that it has more assets than liabilities and could pay off its obligations by selling its assets if it needed to.
Date
Effect
Numerator
Denominator
Jan 3
DTA Increases
Increases
Increases
Jan 27
DTA decreases
Decreases
Decreases
Apr 1
DTA Increases
Increases
Increases
June 13
DTA Increases
Increases
Increases
July 25
DTA decreases
Decreases
Decreases
Aug 1
DTA Increases
Increases
Increases
Dec 31
DTA Increases
Increases
No effect
Dec 31
DTA Increases
Increases
No effect
Dec 31
DTA decreases
No effect
Increases
The details are as below:
Jan 3 : Purchased merchandise on account.
Debit Inventory
Credit Creditors.
So, both assets and liability are increasing. So. DTA is Increasing.
Jan 27 entry as:
Creditors Debit
To Bank
So, Both Numerator and denomenator decrease and DTA also decrease.
april 1
Bank Debit
To Loan
Both increase and dta also increase
June 13 : Purchased merchandise on account.
Debit Inventory
Credit Creditors.
So, both assets and liability are increasing. So. DTA is Increasing.
July 25 entry as:
Creditors Debit
To Bank
So, Both Numerator and denomenator decrease and DTA also decrease.
august 1
Unearned revenue liability increases and credited
bank debited and increases.
So, both numerator and denominator increase and dta increase
Dec 31
Wages Debit ( Expense increase, no effect on asset )
TO wages payable ( Libility increases
So dta increase
Dec 31
interest debit ( Expense increase, no effect on asset )
TO interest payable ( Libility increases
So dta increase
Dec 31
Accured rent income dr ( asset increase)
To rent income ( liability numerator has no effect)
so dta decrease
So Summary is
Date
Effect
Numerator
Denominator
Jan 3
DTA Increases
Increases
Increases
Jan 27
DTA decreases
Decreases
Decreases
Apr 1
DTA Increases
Increases
Increases
June 13
DTA Increases
Increases
Increases
July 25
DTA decreases
Decreases
Decreases
Aug 1
DTA Increases
Increases
Increases
Dec 31
DTA Increases
Increases
No effect
Dec 31
DTA Increases
Increases
No effect
Dec 31
DTA decreases
No effect
Increases
Date
Effect
Numerator
Denominator
Jan 3
DTA Increases
Increases
Increases
Jan 27
DTA decreases
Decreases
Decreases
Apr 1
DTA Increases
Increases
Increases
June 13
DTA Increases
Increases
Increases
July 25
DTA decreases
Decreases
Decreases
Aug 1
DTA Increases
Increases
Increases
Dec 31
DTA Increases
Increases
No effect
Dec 31
DTA Increases
Increases
No effect
Dec 31
DTA decreases
No effect
Increases
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