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P2-3A The accounting records of Fabiano Distribution

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P2-3A The accounting records of Fabiano Distribution show the following assets and liabilities as of

December 31 2010 2011
Cash . . . . . . . . . . . . . . . . . . . . $ 52,500 $ 18,750
Accounts receivable . . . . . . . . 28,500 22,350
Office supplies . . . . . . . . . . . . . 4,500 3,300
Office equipment . . . . . . . . . . 138,000 147,000
Trucks . . . . . . . . . . . . . . . . . . . 54,000 54,000
Building . . . . . . . . . . . . . . . . . . 0 180,000
Land . . . . . . . . . . . . . . . . . . . . . 0 45,000
Accounts payable . . . . . . . . . . 7,500 37,500
Note payable . . . . . . . . . . . . . . 0 105,000

Late in December 2011, the business purchased a small office building and land for $225,000. It paid
$120,000 cash toward the purchase and a $105,000 note payable was signed for the balance. Mr. Fabiano had to invest $35,000 cash in the business (in exchange for stock) to enable it to pay the $120,000 cash. The business also pays $3,000 cash per month for dividends.
Required
1. Prepare balance sheets for the business as of December 31, 2010 and 2011. (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 2011.

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

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