Fontaine Company completed the following transactions during 2012. The company's fiscal year ends on December 31, 2012.

Jan. 2 Paid accrued interest in the amount of \(\$ 52,000\).

Apr. 30 Borrowed \(\$ 550,000\) from Commerce Bank; signed a 12-month, 6 percent interestbearing note.

May 20 Sold merchandise for \(\$ 6,000\) cash plus harmonized sales tax at 14 percent.

June 3 Purchased merchandise for resale at a cost of \(\$ 75,800\), terms \(2 / 10, n / 30\).

July 5 Paid the invoice received on June 3.

Aug. 31 Signed a contract to provide security service to a small apartment complex and collected \(\$ 6,000\) of fees for six months in advance. (Record the collection in a way that will not require an adjusting entry at year-end.)

Dec. 31 Reclassified a long-term debt in the amount of \(\$ 100,000\) to a current liability.

31 Determined that salary and wages earned but not yet paid on December 31 totalled \(\$ 85,000\). Ignore payroll taxes.

31 Recorded income tax expense for the year in the amount of \(\$ 125,000\). The current income taxes payable were \(\$ 93,000\).

\section*{Required:}

1. Prepare journal entries to record each of these transactions.

2. Prepare all adjusting and reclassification entries required on December \(31,2012\).

3. Show how all of the current liabilities arising from these transactions are reported on the statement of financial position at December 31, 2012.

4. For each transaction and entry, state whether the current ratio is increased, decreased, or remains unchanged. Assume that the current ratio is less than 1.0 prior to each transaction.