Prepare an income statement and a retained earnings

Reference no: EM13591363

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.

Reference no: EM13591363

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