The adjusted trial balance for the year of Nelson Corporation at July 31, 2021, follows: 

Requirements 

1. Prepare Nelson Corporation’s 2021 single-step income statement, statement of retained earnings, and balance sheet. Draw arrows linking the three financial statements. 

2. Nelson’s lenders require that the company maintain a debt ratio no higher than 0.50. Calculate Nelson’s debt ratio at July 31, 2021, to determine whether the company is in compliance with this debt restriction. If not, suggest a way Nelson Corporation could have avoided this difficult situation.

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A1 1 2 Account 4 3 Cash 4 Accounts receivable 5 Supplies 6 Prepaid rent 7 Equipment 8 Accumulated depreciation-equipment Nelson Corporation Adjusted Trial Balance July 31, 2021 9 Accounts payable 10 Interest payable 11 Unearned service revenue 12 13 Note payable 14 Common stock 15 Retained earnings 16 Dividends 17 Service revenue Income tax payable 18 Depreciation expense-equipment 19 Salary expense 20 Rent expense 21 Interest expense 22 Insurance expense 23 Supplies expense 24 Income tax expense 25 Total 26 Debit $ 17,000 19,200 2,100 1,600 36,800 12,000 1,200 40,200 11,100 3,000 3,500 2,000 7,200 $ 156,900 Credit $5,000 9,000 800 700 2,200 18,600 10,000 4,000 106,600 $ 156,900