Euro Kitchens a kitchen cabinet maker has presented the following account balances to you as on 31 December 20X1:

Euro Kitchens, capital $123 450

Building (net)55 500

Investment in government bonds 45 000

Mortgage payable (due 1/7/20X8)33 750

Notes payable (due 31/12/20X5)22 500

Interest on Notes payable 1 200

Office equipment (net)35 400

Depreciation expense Office equipment 3 500

Accounts receivable28 950

Bad debts 7 200

Accounts payable 22 050

Inventory19 800

Cash 9 150

Land 6 000

GST collected (on behalf of tax office) 4 500

Marketable securities 4 500

Office supplies 4 050

GST paid 3 000

PAYG tax payable 3 000

Salaries payable 1 650

Sales Revenue 82 000

Unearned revenue 1 500

Prepaid insurance 1 350

Interest payable (current year) 300

Required:

a. Prepare a Balance Sheet showing Current Assets, Non-current assets, Current Liabilities, Non-current liabilities and Owners equity for Euro Kitchens as on 31 December20X1.

b. Assume that you are working in the ABC bank where Euro Kitchens is applying for

$18 000 short-term loan. The bank manager is asking you to prepare a report on the liquidity and solvency of the business by calculating the Current Ratio, Quick Ratio (or Acid-test ratio) and Debt to Assets ratio of the business.

Would you recommend the grant a loan to the business? Explain your decision using results of your ratio analysis.