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Compare the balances on January 4, 2019 with Requirement 2 balances on January 4, 2019.
After all the journal entries are made, the balances are the sameregardless of whether or not reversing entries are made. 10.The adjusted trial balance of Debbie O’Donnel Dance Studio Company follows: Requirement 1. Prepare the classifieid balance sheetof Debbie O’Donnell Dance Studio Company atAugust 31, 2018. Use the report form. You mustcompute the ending balance of Retained Earnings. Every balance sheet is prepared in a similar manner.Begin by preparing the asset section of Debbie O'Donnell Dance Studio Company's classifiedbalance sheet. Remember that current assets are thosethat will be converted to cash, sold, or used up duringthe next 12 months, or within the business's operatingcycle if the cycle is longer than a year. Cash, AccountsReceivable, Office Supplies, and Prepaid Expensesare examples of current assets. Long-term assets areall the assets that will not be converted to cash or usedup within the business's operating cycle or one year,whichever is greater. Long-term assets are typicallymade up of three categories: long-term investments, property, plant, and equipment, and intangible assets.Go ahead and select the labels of the asset portion ofthe classified balance sheet.Thebalance sheet lists liabilities in the order in which they must be paid. The two liability categories reported on the balance sheet are current liabilities andlong-term liabilities. Current liabilities must be paid either with cash or with goods and services within one year, or within the entity's operating cycle if the cycle is longer than a year. Accounts Payable, Notes Payable due within one year, Salaries Payable, Interest Payable, and
Unearned Revenue are all current liabilities. Any portion of a long-term liability that is due within the next year is also reported as a current liability. Current liabilities are listed in the order that they are due. Long-term liabilities are all liabilities that do notneed to be paid within one year or within the entity's operating cycle, whichever is longer. Many Notes Payable are long-term, such as a mortgage on a building.Go ahead and select the labels,accounts, and subtotals to report on the liabilities and stockholders'equity section of Debbie O'Donnell Dance Studio Company's classified balance sheet. The retained earnings balance at August 31, 2018 has not been provided, but we can compute it by using our knowledge of the Statement of Retained Earnings. In this case we need to compute the net income using the information provided in the adjusted trial balance (total revenues - total expenses). Compute the ending retained earnings amount below.Net Income = 16,700 – 5,000 – 2,000 – 300 – 600 – 1400 = 7,400Requirement 2. Compute O’Donnell’s current ratio at August 31, 2018. One year ago, the current ratio was1.24. Indicate whether O’Donnell’s ability to pay current debts has improved, deteriorated, or remained the same.