The accounting records of Crist Crate Services show the following assets and liabilities as of December 31, 2004, and 2005:

Late in December 2005, the business purchased a small office building and land for \($225,000.\) The business paid \($120,000\) cash toward the purchase and a \($105,000\) note payable was signed for the balance. Crist had to invest \($35,000\) cash in the business to enable it to pay the \($120,000\) cash. Crist also withdraws \($3,000\) cash per month from the business for personal use.

Required

1. Prepare balance sheets for the business as of December 31, 2004, and 2005. (Remember that total equity equals the difference between assets and liabilities.)
2. By comparing equity amounts from the balance sheets and using the additional information presented in this problem, prepare a calculation to show how much net income was earned by the business during 2005.

3. Compute the 2005 year-end debt ratio for the business.

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December 31 2005 2004 Cash Accounts receivable $ 52,500 $ 18,750 28,500 22,350 Office supplies 4,500 3,300 Office equipment 138,000 147,000 Trucks Building 54,000 54,000 0 180,000 Land.... 0 45,000 Accounts payable 7,500 37,500 Note payable 0 105,000