Jack Hammer Company completed the following transactions. The annual accounting
ID: 2445503 • Letter: J
Question
Jack Hammer Company completed the following transactions. The annual accounting period ends December 31.
Received $648,000 from Commerce Bank after signing a 12-month, 8 percent, promissory note.
Purchased merchandise on account at a cost of $79,000. (Assume a perpetual inventory system.)
Signed a contract to provide security service to a small apartment complex and collected six months’ fees in advance amounting to $26,000. (Use an account called Unearned Revenue.)
Determined salary and wages of $44,000 were earned but not yet paid as of December 31 (ignore payroll taxes).
Adjusted the accounts at year-end, relating to security service.
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.)
Jack Hammer Company completed the following transactions. The annual accounting period ends December 31.
Explanation / Answer
Answer
Received $6480,000 from Commerce Bank after signing a 12-month, 8 percent, promissory note.
Original Entry
Dr Cash 648,000
Cr Notes Payable 648,000
Adjusting Entry
648,000 x 8% x 8/12 = $34,560 accrued interest
Dr Interest Expense 34,560
Cr Interest Payable 34,560
June 6
Purchased merchandise on account at a cost of $69,000. (Assume a perpetual inventory system.)
Original Entry
Dr Merchandise Inventory 79,000
Cr Accounts Payable 79,000
Adjusting Entry
None
July 15 Paid for the June 6 purchase.
Original Entry
Dr Accounts Payable 79,000
Cr Cash 79,000
Adjusting Entry
None
Aug. 31
Signed a contract to provide security services to a small apartment complex and collected six months’ fees in advance, amounting to $26,000. (Use an account called Unearned Service Revenue.)
Original Entry
Dr Cash 26,000
Cr Unearned Service Revenue 26,000
Adjusting Entry
26,000 x 4/6 = $7,000 adjustment
Dr Unearned Service Revenue 34,667
Cr Service Revenue 34,667
Dec. 31
Determined salary and wages of $44,000 were earned but not yet paid as of December 31 (ignore payroll taxes).
Original Entry
None
Adjusting Entry
Dr Salaries and Wages Expense 44,000
Cr Salaries and Wages Payable 44,000
Transaction
Transaction
Effect Numerator Denominator April 30th Increase as debt will increase being equity part remain same 680,000 0 June 6th Increase as debt will increase being equity part remain same 79,000 0 July 15th Decrease in ratio as we have paide off the debt 79,000 0 August 31st No Impact 0 0 December 31st 0 0 0 December 31st 0 0 0 December 31st increase in debt part by $44,000 44,000 0Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.