Binco Inc. completed the following transactions during month of December. The company’s fiscal year ends on December 31. The HST of 13% is included on all purchases and sales. Cost of goods sold is 60% of the sales.

December 1 Borrowed $50,000 from the PC Bank by signing a five-year note at 6% interest rate. The interest is paid monthly on the 1st of the month.

3 Purchased merchandise inventory on credit for $50,850, terms 2/10, n/30. Binco uses a perpetual inventory system.

8 Sold merchandise on credit for $14,125, including HST, terms 2/10, n/30.

15 Leased a photocopier with a fair value of $50,000. The present value of the monthly payments, $500 for 5 years, represents a major portion of the fair value of the photocopier.

17 Received a cheque from a customer who purchased merchandise on December 8.

20 Purchased merchandise inventory on credit for $40,680, (including HST) terms 2/10, n/30.

24 Received a $300 deposit for back-ordered merchandise to be shipped at the beginning of the New Year.

31 Salary Expense for the month was $10,000, of which employees deductions included CPP, $450; El, $160; and income tax, $2,400. Binco also recorded the employee benefits expense.

Requirements

1. Record all journal entries, including adjusting entries, for the month of December.

2. Show the liability section of the balance sheet on December 31.

3. Identify the impact on the debt ratio—(1) no change, (2) increase, or (3) decrease, after each transaction is complete. Identify each transaction as an independent case, rather than a cumulative effect. Assume that the debt ratio is at 50% and current ratio is 1.5 before considering each transaction.