Question

Lear P2.34A Preparing financial statements from the trial balance and calculating the debt ratio The trial balance as of July 31, 2018, for Sara Simon, Registered Dietician, is presented below: 2. En SARA SIMON, REGISTERED DIETICIAN Trial Balance July 31, 2018 Account Title Cash Accounts Receivable Office Supplies Prepaid Insurance Equipment Accounts Payable Unearned Revenue Notes Payable Simon, Capital Simon, Withdrawals Service Revenue Salaries Expense Rent Expense Utilities Expense Balance Debit Credit $ 38,000 9,000 2,300 2,400 16,000 $ 3,000 3,912 31,000 18,000 2,800 17,888 1,700 1,100 500 $ 73,800 $ 73,800 Total Requirements 1. Prepare the income statement for the month ended July 31, 2018. 2. Prepare the statement of owner's equity for the month ended July 31, 2018. The beginning balance of capital was $0 and the owner contributed $18,000 during the month. 3. Prepare the balance sheet as of July 31, 2018. 4. Calculate the debt ratio as of July 31, 2018.

Answer 1

Hi

To prepare financial statements one needs to analyse trial balance. Segregate different items into revenue and balance sheet items. Items relating to income, gains, expense and losses are regarded as revenue items. Assets, Liabilities are balance sheet items.

1. Income Statement

SARA SIMON, REGISTERED DIETICIAN
Income Statement
For the period ended July 31, 2018
		Amount $
Revenues & Gains
Service Revenue		17888
Total Revenue & Gains		17888
Expenses & Losses
Salaries Expense		1700
Rent Expense		1100
Utilities Expense		500
Total Expenses & Losses		3300
Net Income		14588

2. Statement of Owner's Equity

SARA SIMON, REGISTERED DIETICIAN
Statement of Changes in Owner's Equity
For the period ended July 31, 2018
		Amount $
Owner's Equity at the beginning		0
Add: Investment		18000
Add: Net Income		14588
Subtotal		32588
Less: Withdrawal		2800
Owner's Equity at July 31, 2018		29788

3. Balance Sheet

SARA SIMON, REGISTERED DIETICIAN
Balance Sheet
July 31, 2018
Assets	Amount $	Liabilities	Amount $
Current Assets		Current Liabilities
Cash	38000	Accounts Payable	3000
Accounts Receivable	9000	Unearned Revenue	3912
Office Supplies	2300	Total Current Liabilities	6912
Prepaid Insurance	2400
Total Current Assets	51700	Long Term Liabilities
		Notes Payable	31000
Property, Plant & Equipments		Total Long Term Liabilities	31000
Equipments	16000
Total Prop., Plant & Equip.	16000	Owner's Equity
		On July 31, 2018	29788
		Total Owner's Equity	29788
Total Assets	67700	Total Liabilities & Owner's Equity	67700

4. Debt Ratio = Total Liabilities (Current + Long Term) / Total Assets

Debt Ratio = (6912+31000) / 67700

Debt Ratio = 37912 / 67700 = 0.56