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Prepare the classified balance sheet of Brian O’Brion Dance Studio Company

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E4-23 Preparing a classified balance sheet, and calculating the current and debt ratios [15-20 min]

The adjusted trial balance and the income statement amounts from the August worksheet of Brian O’Brion Dance Studio Company follow:


BRIAN O’BRION DANCE STUDIO COMPANY Partial Worksheet
Month Ended August 31, 2012
Adjusted Trial Balance
Account
Debit
Credit
Cash
$15,800
Supplies
2,000
Prepaid rent
900
Equipment
49,000
Accumulated depreciation
$ 5,500
Accounts payable
4,500
Salary payable
500
Unearned service revenue
5,100
Long-term note payable
4,400
O’Brion, capital
36,500
O’Brion, drawing
1,100
Service revenue
18,100
Salary expense
3,000
Rent expense
1,500
Depreciation expense
300
Supplies expense
400
Utilities expense
600
Total
$74,600
$74,600


Requirements

1. Prepare the classified balance sheet of Brian O’Brion Dance Studio Company at August 31, 2012. Use the report form. You must compute the ending balance of O’Brion, capital.

2. Compute O’Brion’s current ratio and debt ratio at August 31, 2012. One year ago, the current ratio was 1.49 and the debt ratio was 0.29. Indicate whether O’Brion’s ability to pay current and total debts has improved, deteriorated, or remained the same during the current year.

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