Reference no: EM13391546

Jessica and David are student interns at Balanced Books Bookkeeping. They have taken several business math and accounting classes and are now applying what they have learned to real-life situations. They enjoy their internship, but they are sometimes surprised by the assignments they are given. Luckily, they work together, so they share the assignments and learn from each other. Their most recent assignment is to take a listing of accounts provided by one of Balanced Books’ clients and turn them into a balance sheet and income statement. David suggests that their client might appreciate it if they also performed a vertical analysis of each statement. Jessica suggests that they should also compute the current ratio and the acid-test ratio.

1. Create the financial statements for December 31, 2011, depict them in vertical format, and compute the current and acid test ratios.

Account title Amount Account title Amount Cash $4,000 Accounts payable $3,500 Depreciation 2,000 Merchandise inventory 15,000 Carlton, equity 34,500 Accounts receivable 6,000 Cost of goods sold 85,000 Net sales 120,000 Rent expense 15,000 Insurance payable 500 Wages payable 1,500 Equipment 15,000 Utilities 6,500 Wages 8,000 Miscellaneous expenses 1,500