These financial statement items are for Barfield Corporation at year-end, July 31, 2014.

Salaries and wages payable $ 2,080 Salaries and wages expense 57,500 Supplies expense 15,600 Equipment 18,500 Accounts payable 4,100 Service revenue 66,100 Rent revenue 8,500 Notes payable (due in 2017) 1,800 Common stock 16,000 Cash 29,200 Accounts receivable 9,780 Accumulated depreciation—equipment 6,000 Dividends 4,000 Depreciation expense 4,000 Retained earnings (beginning of the year) 34,000 Instructions

(a) Prepare an income statement and a retained earnings statement for the year. Barfield Corporation did not issue any new stock during the year.

(b) Prepare a classified balance sheet at July 31.

(c) Compute the current ratio and debt to assets ratio.

(d) Suppose that you are the president of Crescent Equipment. Your sales manager has approached you with a proposal to sell $20,000 of equipment to Barfield. He would like to provide a loan to Barfield in the form of a 10%, 5-year note payable. Evaluate how this loan would change Barfield’s current ratio and debt to assets ratio, and discuss whether you would make the sale.AppendixLO1