These financial statement items are for Whitnall Corporation at year-end, July 31, 2012.
- Salaries and wages payable $ 2,080
- Salaries and wages expense 57,500
- Supplies expense 15,600
- Equipment $18,500
- Accounts payable 4,100
- Service revenue 66,100
- Rent revenue 8,500
- Notes payable (due in 2015) 1,800
- Common stock 16,000
- Cash 29,200
- Accounts receivable 9,780
- Accumulated depreciation-equipment 6,000
- Dividends 4,000
- Depreciation expense 4,000
- Retained earnings (beginning of the year) 34,000
Instructions
(a) Prepare an income statement and a retained earnings statement for the year. Whitnall Corporation did not issue any new stock during the year.
(b) Prepare a classified balance sheet at July 31.
(c) Compute the current ratio and debt to total assets ratio.
(d) Suppose that you are the president of Crescent Equipment. Your sales manager has approached you with a proposal to sell $20,000 of equipment to Whitnall. He would like to provide a loan to Whitnall in the form of a 10%, 5-year note payable. Evaluate how this loan would change Whitnall's current ratio and debt to total assets ratio, and discuss whether you would make the sale.