The adjusted trial balance for the year of Nelson Corporation at July 31, 2018, follows:

Requirements

1. Prepare Nelson Corporation’s 2018 single-step income statement, statement of retained earnings, and balance sheet. Draw arrows linking the three financial statements.

2. Nelson’s lenders require that the company maintain a debt ratio no higher than 0.50. Calculate Nelson’s debt ratio at July 31, 2018, to determine whether the company is in compliance with this debt restriction. If not, suggest a way Nelson Corporation could have avoided this difficult situation.

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A1 Nelson Corporation Adjusted Trial Balance July 31, 2018 2 Account 3 Cash 4 Accounts receivable 5 Supplies 6 Prepaid rent 7 Equipment 8 Accumulated depreciation-equipment 9 Accounts payable 10 Interest payable 11 Unearned service revenue 12 Income tax payable 13 Note payable 14 Common stock 15 Retained earnings 16 Dividends 17 Service revenue 18 Depreciation expense–equipment 19 Salary expense 20 Rent expense 21 Interest expense 22 Insurance expense 23 Supplies expense 24 Income tax expense 25 Total Debit Credit $ 17,000 19,200 2,100 1,600 36,800 $ 5,000 9,000 800 700 2,200 18,600 10,000 4,000 12,000 106,600 1,200 40,200 11,100 3,000 3,500 2,000 7,200 $ 156,900 $ 156,900 26