The accounting records of Fabiano Distribution show the following assets and liabilities as of December 31, 2010 and 2011. December 31 2010 2011 Cash $ 44,557 $ 6,968 Accounts receivable 24,186 18,962 Office supplies 3,815 2,794 Office equipment 117,114 124,749 Trucks 45,828 54,828 Building 0 152,772 Land 0 38,123 Accounts payable 63,585 31,536 Note payable 0 90,895 Late in December 2011, the business purchased a small office building and land for $190,895. It paid $100,000 cash toward the purchase and an $90,895 note payable was signed for the balance. Mr. Fabiano had to invest $37,000 cash in the business in exchange for stock to enable it to pay the $100,000 cash. The business also pays $2,600 cash per month for dividends.

The accounting records of Fabiano Distribution show the following assets and liabilities as of December 31, 2010 and 2011.

December 31		2010		2011
Cash	$	44,557	$	6,968
Accounts receivable		24,186		18,962
Office supplies		3,815		2,794
Office equipment		117,114		124,749
Trucks		45,828		54,828
Building		0		152,772
Land		0		38,123
Accounts payable		63,585		31,536
Note payable		0		90,895

Late in December 2011, the business purchased a small office building and land for $190,895. It paid $100,000 cash toward the purchase and an $90,895 note payable was signed for the balance. Mr. Fabiano had to invest $37,000 cash in the business in exchange for stock to enable it to pay the $100,000 cash. The business also pays $2,600 cash per month for dividends.

Required:
1.	Prepare balance sheets for the business as of December 31, 2010 and 2011.

 

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 2011.

 

Explanation:

Add dividends ($2,600 × 12) = $31,200

  

FABIANO DISTRIBUTION Balance Sheet December 31, 2010
Assets
Cash		$	44,557
Accounts receivable			24,186
Office supplies			3,815
Trucks			45,828
Office equipment			117,114
Total Assets		$	235,500
Liabilities
Accounts payable		$	63,585
Equity
Total equity			171,915
Total Liabilities & Equity		$	235,500

    

FABIANO DISTRIBUTION Balance Sheet At December 31, 2011
Assets
Cash		$	6,968
Accounts receivable			18,962
Office supplies			2,794
Trucks			54,828
Office equipment			124,749
Building			152,772
Land			38,123
Total Assets		$	399,196
Liabilities
Accounts payable		$	31,536
Note payable			90,895
Total Liabilities		$	122,431
Equity
Total equity			276,765
Total Liabilities and Equity		$	399,196

3.

Compute the 2011 year-end debt ratio for the business.

Explanation:

Debt Ratio = $122,431 / $399,196 = 30.67%