Financial Statements under Various Theories of Equity Drake Company reported the following for 2008: Current assets $87,000 Current liabilities 19,000 Revenues 450,000 Cost of goods sold 220,000 Noncurrent assets 186,000 Bonds payable (10%, issued at par) 100,000 Preferred stock, $5, $100 par 20,000 Common stock, $10 par 50,000 Paid-in-capital in excess of par 48,000 Operating expenses 64,000 Retained earnings 36,000 Common stockholders received a $2 dividend during the year. The preferred stock is noncumulative and nonparticipating.
Required:
a. Ignoring income taxes, prepare an income statement and balance sheet for Drake Company at December 31, 2008, that is consistent with each of the following theories of equity:
i. Entity theory ii. Proprietary theory iii. Residual equity theory
b. For each theory cited above, compute the December 31, 2008, debt-to- equity ratio. If none would be computed, discuss why.