1.
To show:
1.
Explanation of Solution
Liabilities: Liabilities are debt and obligations of a business. These are the claims against the resources that a business owes to outsiders of the company. Liabilities may be Current liabilities, and Long-term liabilities. Examples:Creditors, Bills payable, Bank overdraft, Salaries and wages payable, and Notes payable.
The following is the accounting equation for the given transactions:
Working notes:
Calculate interest expense at December 31 as below:
Calculate the amount of unearned revenue earned at December 31 as below:
2.
To analyze: The impact of each transaction on debt to assets ratio.
2.
Explanation of Solution
Debt to assets ratio: Debt to assets ratio is used to evaluate the relationship between the total liabilities and total assets of the company. Debt to equity ratio helps the company to determine the proportion of debt and assets. When the ratio is greater than 1, then it is higher and thus, company faces higher risk.
Debt to assets ratio is calculated by using the following formula:
Show the impact of each transaction on debt to assets ratio.
Impact of each transaction on debt to assets ratio | |||
Transaction | Total liabilities | Total assets | Effect on Ratio |
January 3 | Increased | Increased | Increased |
January 27 | Decreased | Decreased | Decreased |
April 1 | Increased | Increased | Increased |
June 13 | Increased | Increased | Increased |
July 25 | Decreased | Decreased | Decreased |
August 1 | Increased | Increased | Increased |
December 31 | Increased | No Change | Increased |
December 31 | Increased | No Change | Increased |
December 31 | Decreased | No Change | Decreased |
Table (1)
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Chapter 10 Solutions
FUND. OF FINANCIAL ACCT. (LL) W/CONNECT
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