The adjusted trial balance of Snead Corporation, at December 31, 20X6, follows on the next page.

Required

1. Prepare Snead Corporation's 20X6 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. Snead's lenders require that the company maintain a debt ratio no higher than 0.60. Compute Snead's debt ratio at December 31, 20X6, to determine whether the company is in compliance with this debt restriction. If not, suggest a way that Snead could have avoided this difficult situation.

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Snead Corporation Adjusted Trial Balance December 31, 20X6 Equipme Accumulated depreciation.. Accounts payable.... 37,100 3 Income tax payable Note payable Retained earnings. ervice revenue. Depreciation expense 1 Insurance expense Income tax expenseo $144,000 $144,000