Assume Warren Brown of Cake Love wishes to expand but needs a \($30,000\) loan. The bank requests Warren to prepare a balance sheet and key financial ratios. Warren has not kept formal records but is able to provide the following accounts and their amounts as of December 31, 2008:

Required 1. Prepare a balance sheet as of December 31, 2008, for Cake Love. (You need only report the total equity amount on the balance sheet.)
2. Compute Cake Love’s debt ratio and its return on assets (the latter ratio is defined in Chapter 2).
Assume average assets equal its ending balance.
3. Do you think the prospects of Cake Love repaying a \($30,000\) bank loan are good? Why or why not?

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Cash $ 3,600 Accounts Receivable... $9,600 Prepaid Insurance $ 1,500 Prepaid Rent 9.400 Store Supplies 6,600 Equipment 50,000 Accounts Payable..... 2,200 Unearned Revenues 15,600 Total Equity 62,900 40,000 Annual net income *The total equity amount reflects all owner investments, withdrawals, revenues, and expenses as of December 31, 2008.