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Chapter 2: Q17RQ (page 90)
What is the calculation for the debt ratio? Explain what the debt ratio evaluates.
The debt ratio is calculated by dividing liabilities by total assets and it evaluates the ability of the company to pay its debt.
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For each account, identify if the change would be recorded as a debit (DR) or credit (CR).
11. Increase to Cash 16. Increase to Interest Revenue
12. Decrease to Accounts Payable 17. Increase to Rent Expense
13. Increase to Common Stock 18. Decrease to Office Supplies
14. Increase to Unearned Revenue 19. Increase to Prepaid Rent
15. Decrease to Accounts Receivable 20. Increase to Notes Payable
Journalizing transactions, posting journal entries to T-accounts, and preparing a trial balance
Ann Simpson started her practice as a design consultant on September 1, 2018. During the first month of operations, the business completed the following transactions:
Sep. 1 Received \(48,000 cash and issued common stock to Simpson.
4 Purchased office supplies, \)1,200, and furniture, \(1,300, on account.
6 Performed services for a law firm and received \)1,900 cash.
7 Paid \(18,000 cash to acquire land to be used in operations.
10 Performed services for a hotel and received its promise to pay the \)1,200 within one week.
14 Paid for the furniture purchased on September 4 on account.
15 Paid assistant鈥檚 semimonthly salary, \(1,500.
17 Received cash on account, \)1,000.
20 Prepared a design for a school on account, \(650.
25 Received \)2,100 cash for design services to be performed in October.
28 Received \(2,900 cash for consulting with Plummer & Gordon.
29 Paid \)600 cash for a 12-month insurance policy starting on October 1.
30 Paid assistant鈥檚 semimonthly salary, \(1,500.
30 Paid monthly rent expense, \)600.
30 Received a bill for utilities, \(350. The bill will be paid next month.
30 Paid cash dividends of \)3,700.
Requirements 2. Open a T-account for each of the accounts.
Identify which types of accounts have a normal debit balance and which types of accounts have a normal credit balance.
Explain the five steps in journalizing and posting transactions.
Consider the following accounts and identify each as an asset (A), liability (L), or equity (E). 1. Rent Expense 6. Accounts Payable 2. Common Stock 7. Unearned Revenue 3. Furniture 8. Notes Receivable 4. Service Revenue 9. Dividends 5. Prepaid Insurance 10. Insurance Expense
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