PB10-1 Determining Financial Effects of Transactions Affecting Current Liabiliti

Question

PB10-1 Determining Financial Effects of Transactions Affecting Current Liabilities with Evaluation of Effects on the Debt-to-Assets Ratio [LO 10-2, LO 10-5]

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

Purchased merchandise on account at a cost of $34,000. (Assume a perpetual inventory system.)

Rented out a small office in a building owned by Tiger Company and collected eight months’ rent in advance amounting to $10,000. (Use an account called Unearned Rent Revenue.)

Determined wages of $22,000 were earned but not yet paid on December 31 (ignore payroll taxes).

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.)

For each item, indicate whether the debt-to-assets ratio is increased or decreased or there is no change. (Assume Tiger Company’s debt-to-assets ratio is less than 1.0.) (Enter your answers in transaction order provided in the problem statement.)

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

Explanation / Answer

Accounting equation

Adjustment Entries

debit

credit

Assets

=

Liabilities

+

Shareholders equity

Effect on debt equity ratio

1-

Inventory

34000

1-

34000

34000

Increase

accounts payable

34000

2-

-34000

-34000

decrease

3-

90000

90000

Increase

2-

accounts payable

34000

4-

10000

10000

Increase

cash

34000

5-

-10000

-10000

decrease

6-

10000

10000

Increase

3-

cash

90000

7-

22000

-22000

Increase

notes payable

90000

8-

-6250

6250

decrease

9-

4725

-4725

Increase

4-

Inventory

10000

accounts payable

10000

5-

accounts payable

10000

cash

10000

6-

cash

10000

unearned rent revenue

10000

7-

wages expense

22000

wages payable

22000

8-

unearned rent revenue

6250

rent revenue

6250

9-

interest expense

4725

interest payable

4725

Accounting equation

Adjustment Entries

debit

credit

Assets

=

Liabilities

+

Shareholders equity

Effect on debt equity ratio

1-

Inventory

34000

1-

34000

34000

Increase

accounts payable

34000

2-

-34000

-34000

decrease

3-

90000

90000

Increase

2-

accounts payable

34000

4-

10000

10000

Increase

cash

34000

5-

-10000

-10000

decrease

6-

10000

10000

Increase

3-

cash

90000

7-

22000

-22000

Increase

notes payable

90000

8-

-6250

6250

decrease

9-

4725

-4725

Increase

4-

Inventory

10000

accounts payable

10000

5-

accounts payable

10000

cash

10000

6-

cash

10000

unearned rent revenue

10000

7-

wages expense

22000

wages payable

22000

8-

unearned rent revenue

6250

rent revenue

6250

9-

interest expense

4725

interest payable

4725

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