E10-5 Determining the Impact of Current Liability Transactions, Including Analys
ID: 2518506 • Letter: E
Question
E10-5 Determining the Impact of Current Liability Transactions, Including Analysis of the Debt-to-Assets Ratio [LO 10-2, LO 10-5] Bryant Company sells a wide range of inventories, which are initially purchased on account. Occasionally, a short-term note payable is used to obtain cash for current use. The following transactions were selected from those occurring during the year a. On January 10, purchased merchandise on credit for $18,000. The company uses a perpetual inventory system. b. On March 1, borrowed $40,000 cash from City Bank and signed a promissory note with a face amount of $40,000, due at the end of six months, accruing interest at an annual rate of 8 percent, payable at maturity Required 1. For each of the transactions, indicate the accounts, amounts, and effects on the accounting equation. (Enter any decreases to account balances with a minus sign.) Date Assets Liabilitiess Stockholders' Equity January 10 March 1 2. What amount of cash is paid on the maturity date of the note? ash Pai 3. Indicate the impact of each transaction (increase, decrease, and NE for no effect) on the debt-to-assets ratio. Assume Bryant Company had $300,000 in total liabilities and 500,000 in total assets, yielding a debt-to-assets ratio of 0.60, prior to each transaction. (Round your answer to 2 decimal places.) ImpactExplanation / Answer
Solution:
Part 1 --- Indicate the Accounts, amounts and effects on the accounting equation
Date
Assets
=
Liabilities
+
Stockholders' Equity
January.10
$18,000
Increase
=
$18,000
Increase
+
$0
March.1
$40,000
Increase
=
$40,000
Increase
+
$0
Part 2 --- Amount of cash is paid on the maturity date of the note
Cash = Face Value of Notes Payable + Interest Payable
= $40,000 + (40,000*8%*6/12)
= $40,000 + $1,600
= $41,600
Part 3 ---
Impact
a.
Increase
0.61
b.
Increase
0.63
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Date
Assets
=
Liabilities
+
Stockholders' Equity
January.10
$18,000
Increase
=
$18,000
Increase
+
$0
March.1
$40,000
Increase
=
$40,000
Increase
+
$0
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