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. Jan. 3 Purchased merchandise on account at a cost of $24,000. (Assume a perpetual inventory system.) Jan. 27 Paid for the January 3 purchase. Apr. 1 Received $80,000 from Atlantic Bank after signing a 12-month, 5 percent promissory note. June 13 Purchased merchandise on account at a cost of $8,000. July 25 Paid for the June 13 purchase. July 31 Rented out a small office in a building owned by Tiger Company and collected eight months’ rent in advance amounting to $8,000. Dec. 31 Determined wages of $12,000 were earned but not yet paid on 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 rent. Required: For each listed transaction and related adjusting entry, indicate the accounts, amounts, and effects on the accounting equation. 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.)

Answer 1

TIGER COMPANY

Jan 3 : Liabilities( Creditors) increase by $24,000

Asset( Inventory ) Increase by $24,000

debt - to asset ratio not affected

Jan 27: Asset (Cash ) will decrease by $24,000

Liabilities ( Creditors ) will decrease by $24,000

debt - to asset ratio not affected

April 1 : Liabilities will increasec by $80,000

Asset ( Cash) will increase by $80,000

debt - to asset ratio not be affected

June 13 : Liabilities ( Creditors) will increase by $8,000

Asset(Inventory) will increase by $8,000

debt - to asset ratio not be affected

July 25: Assee(Cash) will decrease by $8,000

Liabilities( Creditors) will decrease by $8,000

debt - to asset ratio not be affected

July 31: Cash( Asset) increase by $8,000

Liabilities( Deferred income ) will increase by $8,000

debt - to= asset ratio not be affected

Dec 31: Income will decrease by $12,000

Liabilities will decrease by $12,000

debt-to-asset ratio will be increased

Step-by-step explanation: