The accounting records of Nettle Distribution show the following assets and liabilities as of December 31, 2012 and 2013.
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Late in December 2013, the business purchased a small office building and land for $140,000. It paid $100,000 cash toward the purchase and a $40,000 note payable was signed for the balance. Mr. Nettle had to invest $35,000 cash in the business to enable it to pay the $100,000 cash. Mr. Nettle withdraws $3,000 cash per month for personal use.
Required:
1. Prepare balance sheets for the business as of December 31, 2012 and 2013. (Hint: Report only total equity on the balance sheet and remember that total equity equals the difference between assets and liabilities.)
2. By comparing equity amounts from the balance sheets and using the additional information presented in this problem, prepare a calculation to show how much net income was earned by the business during 2013.
3. Compute the 2013 year end debt ratio (in percent and rounded to onedecimal).