Hi, I need help answering parts 2 and 3. Do I need to prepare a trial balance to answer the questions? This is my first accounting class, and I'm finding it a bit overwhelming.

Teport 2. In Chapter 2. we discussed the current ratio. American Eagle Outfitters reported the current ratio in Item 6 of the 10-K. Observe the trends over time for both the net profit margin and the current ratio. What do they suggest about American Eagle Outfitters? CP3-5 LO3-3, 3-4, 3-5 Critical Thinking Cases Making a Decision as a Bank Loan Officer: Analyzing and Restating Financial Statements That Have Major Deficiencies (Challenging) Julio Estela started a small boat repair service company during the current year. He is interested in obtaining a $100,000 loan from your bank to build a dry dock to store boats for customers in the winter months. At the end of the year, he prepared the following statements based on information stored in a large filing cabinet: ESTELA COMPANY Profit for the Current Year $ 55,000 10,000 65,000 Service fees collected in cash during the current year Cash dividends received Total Expense for operations paid during the current year Cash stolen New tools purchased during the current year (cash paid) Supplies purchased for use on service jobs (cash paid) $22,000 500 1,000 3,200 Total 26,700 Profit $ 38,300 Assets Owned at the End of the Current Year $ 29,300 32,000 18,000 Cash in checking account Building (at current market value) Tools and equipment Land (at current market value) Stock in ABC Industrial Total 30,000 130,000 $239,300 CHAPTER 3 Operating Decisions and the Accounti The following is a summary of completed transactions: a. Received the following contributions (at fair value) to the business from the owner when it was started in exchange for 1,000 shares of $1 par value common stock in the new company: Building Tools and equipment $21,000 17,000 Land Cash $20,000 1,000 b. Earned service fees during the current year of $87,000; of the cash collected, $20,000 was for deposits from customers on work to be done by Julio in the next year. c. Received the cash dividends on shares of ABC Industrial stock purchased by Julio Estela six years earlier the stock was not owned by the company). d. Incurred operating expenses during the current year of $61,000. e. Determined amount of supplies on hand (unused) at the end of the current year as $700. Required: 1. Did Julio prepare the income statement on a cash basis or an accrual basis? Explain how you can tell. Which basis should be used? Explain why. 2. Reconstruct the correct entries under accrual accounting principles and post the effects to T-accounts. 3. Prepare an accrual-based income statement, statement of stockholder's equity (only one shareholder), and a classified balance sheet. Explain (using footnotes) the reason for each change that you make to the income statement. 4. What additional information would assist you in formulating your decision regarding the loan to Julio? 5. Based on the revised financial statements and any additional information needed, write a letter to Julio explaining your decision at this time regarding the loan