Chapter 2, Problem 5PSA

1.

To determine

Concept Introduction:

Financial statements are the records of financial activity and the financial position of a business presented structurally. There are three types of financial statements generally prepared by most businesses, they are income statement which reports the income of a business, a balance sheet which reports the financial position of a business and a statement of retained earnings which reports how equity changes over the period.

The balance sheet for year 1 and year 2.

2.

To determine

Concept Introduction:

Financial statements are the records of financial activity and the financial position of a business presented structurally. There are three types of financial statements generally prepared by most businesses, they are income statement which reports the income of a business, a balance sheet which reports the financial position of a business and a statement of retained earnings which reports how equity changes over the period.

The net income for Year 2.

3.

To determine

Concept Introduction:

Debt ratio: Debt ratio measures the percentage of shares financed by debt, the higher debt ratio is considered riskier for the business, because a higher debt ratio indicates a larger portion of assets are funded by external debt, it is computed as total liabilities divided by the total of assets.

  $\text{Debt ratio}=\frac{\text{Total}\text{liabilities}}{\text{Total}\text{}\text{assets}}$

The Debt ratio for year 2.