These financial statement items are for Fairview Corporation at year-end, July 31, 2017.

Salaries and wages payable ...................................$ 2,080

Salaries and wages expense ................................... 57,500

Supplies expense ............................................... 15,600

Equipment ...................................................... 18,500

Accounts payable ............................................. 4,100

Service revenue ................................................ 66,100

Rent revenue ................................................... 8,500

Notes payable (due in 2020) ................................. 1,800

Common stock ................................................ 16,000

Cash ............................................................ 29,200

Accounts receivable .......................................... 9,780

Accumulated depreciation-equipment ................... 6,000

Dividends ..................................................... 4,000

Depreciation expense....................................... 4,000

Retained earnings (beginning of the year) ................. 34,000

Instructions

(a) Prepare an income statement and a retained earnings statement for the year. Fairview Corporation did not issue any new stock during the year.

(b) Prepare a classified balance sheet at July 31.

(c) Compute the current ratio and debt to assets ratio.

(d) Suppose that you are the president of Lunar Equipment. Your sales manager has approached you with a proposal to sell $20,000 of equipment to Fairview. He would like to provide a loan to Fairview in the form of a 10%, 5-year note payable. Evaluate how this loan would change Fairview's current ratio and debt to assets ratio, and discuss whether you would make the sale