The adjusted trial balance of Marshall Ltd. at December 31, 2020.

Requirements

1. Prepare Marshall Ltd.'s 2020 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, 2020, 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.

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Marshall Ltd. Adjusted Trial Balance December 31, 2020 B C D 23 Cash $ 1,400 4 10 Accounts receivable Supplies 5 Prepaid rent 6 7 8 Accounts payable 9 Interest payable 8,900 2,300 1,600 Equipment Accumulated depreciation 37,100 $ 4,300 3,700 800 10 Unearned service revenue 600 11 Income tax payable 2,100 12 Note payable 18,600 13 Share capital 5,000 14 Retained earnings 1,000 15 Dividends 24,000 16 Service revenue 107,900 17 Depreciation expense 1,600 18 Salary expense 39,900 19 Rent expense 10,300 20 Interest expense 3,100 21 Insurance expense 3,800 22 Supplies expense 2,900 7,100 23 Income tax expense 24 Total 25 $1++XX S1++,000