Angel Martin is a young entrepreneur who operates Martin Music Services, offering singing lessons andinstruction on musical instruments. Martin wishes to expand but needs a $30,000 loan. The bank requests that Martin prepare a balance sheet and key financial ratios. Martin has not kept formal records but is able to provide the following accounts and their amounts as of December 31.

*The total equity amount reflects all owner investments, withdrawals, revenues, and expenses as of December 31.

Required

1. Prepare a balance sheet as of December 31 for Martin Music Services. (Report only the total equity amount on the balancesheet.)

2. Compute Martin’s debt ratio and its return on assets (the latter ratio is defined in Chapter 1). Assume average assets equal itsending balance.

3. Do you believe the prospects of a $30,000 bank loan are good? Why or why not?

Transcribed Image Text:

$ 3,600 Accounts receivable 9,400 2,200 40,000 $ 9,600 6,600 15,600 Prepaid insurance Equipment Total equity*. $ 1,500 Cash Prepaid rent. Accounts payable . Annual net income.. Store supplies Unearned lesson fees. 50,000 62,900