The adjusted trial balance of Marshall Ltd. at December 31, 2017, is given on page 163.

Requirements

1. Prepare Marshall Ltd.'s 2017 income statement, statement of retained earnings, and balance sheet. List expenses (except for income tax) in decreasing order on the income statement, and show total liabilities on the balance sheet. Draw arrows linking the three financial statements.

2. Marshall Ltd.'s lenders require that the company maintain a debt ratio no higher than 0.50. Compute Marshall Ltd.'s debt ratio at December 31, 2017, to determine whether the company is in compliance with this debt restriction. If not, suggest a way that Marshall Ltd. could have avoided this difficult situation.

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Marshall Ltd. Adjusted Trial Balance December 31, 2017 2 Cash 3 Accounts receivable 4 Supplies 5 Prepaid rent $ 1,400 8,900 2,300 1,600 37,100 6 Equipment 7 Accumulated depreciation $ 4,300 3,700 8 Accounts payable 9 Interest payable 10 Unearned service revenue 11 Income tax payable 12 Note payable 13 Share capital 14 Retained earnings 15 Dividends 16 Service revenue 17 Depreciation expense 18 Salary expense 19 Rent expense 20 Interest expense 21 Insurance 22 Supplies expense 23 Income tax expense 24 Total 25 2,100 18,600 5,000 1,000 24,000 107,900 1,600 39,900 10,300 3,100 3,800 2,900 7,100 3