The accounting records of Faviana Shipping show the following assets and liabilities as...

The accounting records of Faviana Shipping show the following assets and liabilities as of December 31, 2008 and 2009.

Late in December 2009, the business purchased a small office building and land for $205,080. It paid $120,000 cash toward the purchase and an $85,080 note payable was signed for the balance. Ms. Faviana had to invest $34,000 cash in the business to enable it to pay the $120,000 cash. The owner withdraws $2,400 cash per month for personal use.

Required

1. Prepare balance sheets for the business as of December 31, 2008 and 2009. (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 2009.

3. Compute the 2009 year-end debt ratio for the business.