GHI Inc. has the following account balances as of December 31, 2023:

• Cash: $12,000
• Accounts Receivable: $8,000
• Inventory: $15,000
• Prepaid Insurance: $2,000
• Equipment: $25,000
• Accumulated Depreciation: $5,000
• Accounts Payable: $10,000
• Notes Payable: $7,000
• Common Stock: $20,000
• Retained Earnings: $20,000

Requirements:

• Prepare a classified balance sheet.
• Compute the current ratio and quick ratio.
• Analyze the liquidity position of GHI Inc.
• Prepare the adjusting journal entries for the following:
  • Depreciation expense for the year: $2,500
  • Insurance expense for the year: $1,000
• Discuss the importance of adjusting entries in financial reporting.