Chapter 3, Problem 3.72BP

LO 5

(Learning Objective 5: Close the books, evaluate retained earnings) The accounts of Meadowbrook Service, Inc., at January 31, 2018, are listed in alphabetical order.

Accounts payable................	$ 10,000	Interest expense..............	$ 200
Accounts receivable..............	1,000	Note payable, long-term...	15,600
Accumulated depreciation. equipment...................		Other assets, long-term...	13,700
	7,100	Prepaid expenses.............	5,000
Advertising expense..............	11,200	Retained earnings, January 31, 2017...............................
Cash.......................................	22,000		13,700
Common stock......................	1,500	Salary expense....................	27,800
Current portion of long term rote parable....................		Salary payable..................	2,000
	2,200	Service revenue.................	95,500
Depreciation expense—equipment	2,100	Supplies.............................	6,400
Dividends declared..............	13,000	Supplies expense.................	5,000
Equipment.........................	43,000	Unearned service revenue...	3,000

Requirements

1. 1. All adjustments nave been journalized and posted but the closing entries have no: yet been made. Journalize Meadowbrook’s closing entries at January 31, 2018
2. 2. Set up a T-account for Retained Earnings and post to that account. Then calculate Meadowbrook’s net income for the year ended January 31, 2018. What is the ending balance of Retained Earnings?
3. 3. Did Retained Earnings increase or decrease during the year? What caused the increase or decrease?

LO 4, 6

P3-72B. (Learning Objectives 4, 6: Construct the financial statements; analyze and evaluate liquidity and debt-paying ability) Refer back to Problem 3·71B.

Requirements

1. 1. Use the Meadowbrook Services data in Problem 3-71B to prepare the company s classified balance sheet at January 31, 2018. Label total assets, total liabilities, and stockholder’s equity.
2. 2. Calculate Meadowbrook’s networking capital, current ratio, and debt ratio at January 31, 2018, rounding to two decimal places. At January 31, 2017, the net working capital was $16,700, the current ratio was 1.75, and the debt ratio was 0.25. Did Meadowbrook’s ability to pay both current and total liabilities improve or deteriorate during the fiscal year? Evaluate Meadowbrook’s debt position as strong or weak and give your reason.