Bryant Company sells a wide range of inventories which are i

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 b On March 1, borrowed $40,000 cash from City Bank and signed a promissory note with a face amount of system. $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 January 10 March 1

Solution

Req 1: Date Assets                    = Liabilities           + Stockholders equity 10-Jan Inventory Accounts payable 18,000 $18,000 1-Mar Cash Notes Payable 40,000 $40,000 Req 2: Amount of Notes payable 40000 Add: Interest 1600 (40000 *8% * 6/12) Cash paid on maturity 41600 Req 3: A. Inventory purchase: Debts: 300000+18000=318000 Total assets: 500000+18000 = 518000 Debt ratio\" Debt / Assets = 318000 /518000 = 0.614 B. Notes payable Debts: 300000+40000 = 340000 Assets: 500000+40000 = 540000 Debt ratio= 340000/540000 = 0.63 Impact New ratio a. Debt ratio increase 0.614 b.   Debt ratio increase 0.63