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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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Question:E2-21 Journalizing transactions from T-accounts In December 2018, the first five transactions of Abling鈥檚 Lawn Care Company have been posted to the T-accounts. Prepare the journal entries that served as the sources for the five transactions. Include an explanation for each entry
Cash
Question:Preparing financial statements from the trial balance and calculating the debt ratio
The trial balance as of July 31, 2018, for Sara Simon, Registered Dietician, is presented below:
Account Title Debit Credit
Office Supplies 2,300
Cash 38,000
Accounts Receivable 9,000
Prepaid Insurance 2,400
Equipment 16,000
Accounts Payable 3,000
Unearned Revenue 3,912
Notes Payable 31,000
Common Stock 18,000
Dividends 2,800
Salaries Expense 1,700
Rent Expense 1,100
Utilities Expense 500
Service Revenue 17,888
Total Balance \( 73,800 \) 73,800
Requirements 1. Prepare the income statement for the month ended July 31, 2018.
Question:Preparing a trial balance from T-accounts
The T-accounts of McMahon Farm Equipment Repair follow as of May 31, 2018.
ASSETS Salaries Payable LIABILITIES EQUITY Retained Earnings 4,000 29,000 Notes Payable 3,500 400 Accounts Receivable 14,000 Land 29,000 Building 16,000 Equipment Common Stock Contributed Capital Dividends Property Tax Expense 1,000 Advertising Expense 280
Cash 31,000 1,800 400 14,000 4,200 800 4,000 2,000 3,380
Service Revenue 3,500 1,800 4,200 31,000 2
Your friend, Dean McChesney, requested that you advise him on the effects that certain transactions will have on his business, A-Plus Travel Planners. Time is short, so you cannot journalize the transactions. Instead, you must analyze the transactions without a journal. McChesney will continue the business only if he can expect to earn a monthly net income of \(6,000. The business completed the following transactions during June:
a. McChesney deposited \)10,000 cash in a business bank account to start the company. The company issued common stock to McChesney.
b. Paid \(300 cash for office supplies.
c. Incurred advertising expense on account, \)700.
d. Paid the following cash expenses: administrative assistant鈥檚 salary, \(1,400; office rent, \)1,000.
e. Earned service revenue on account, \(8,800.
f. Collected cash from customers on account, \)1,200.
Requirements
3. Prepare a trial balance at June 30, 2018
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 4. Prepare the trial balance of Ann Simpson, Designer, as of September 30, 2018.
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