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.