Question

Drake Company reported the following for 2014:
Current assets................ $ 87,000
Current liabilities................ 19,000
Revenues................ 450,000
Cost of goods sold............ 220,000
Noncurrent assets............. 186,000
Bonds payable (10%, issued at par) ..... 100,000
Preferred stock, $ 5, $ 100 par ....... 20,000
Common stock, $ 10 par.......... 50,000
Paid- in capital in excess of par........ 48,000
Operating expenses............. 64,000
Retained earnings............. 36,000
Common stockholders received a $ 2 dividend during the year. The preferred stock is noncumulative and nonparticipating.

Required:
a. Ignoring income taxes, prepare an income statement and balance sheet for Drake Company at December 31, 2014, that is consistent with each of the following theories of equity:
i. Entity theory
ii. Proprietary theory
iii. Residual equity theory
b. For each theory cited above, compute the December 31, 2014, debt-to- equity ratio. If none would be computed, discuss why.



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  • CreatedDecember 17, 2014
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