Budai Inc. completed the following transactions during the month of December.

The company's fiscal year ends on December 31. The HST of 13% is included in all purchases and sales. Cost of goods sold is 50% of the sales.

December 1 Leased an automobile with a fair value of $50,000. The present value of the monthly payments, $600 for 4 years, represents a major portion of the fair value of the automobile. At the end of the 4th year, Budai can purchase the automobile for $1,000, which will be significantly lower than the fair value at the end of the 4th year.

3 Purchased merchandise inventory on credit for $28,250, terms 2/10, n/30. Budai uses a perpetual inventory system.

10 Sold merchandise on credit for $18,080, terms 2/10, n/30.

12 Paid the invoice for the purchase on December 3.

16 Borrowed $30,000 from the CT Bank by signing a three-year note at 4% interest rate. The interest is paid monthly on the 15th of the month.

19 Received a cheque from a customer who purchased merchandise on December 10.

23 Purchased merchandise inventory on credit for $47,460, terms 2/10, n/30.

28 Received a $500 deposit for back-ordered merchandise to be shipped at the beginning of the New Year.

31 Salary Expense for the month was $25,000, of which employee deductions included CPP, $1,230; El, $430; and income tax, $6,250. Budai 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 and current 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 40% and current ratio is 0.75 before considering each transaction.