OPQ Inc. has the following account balances:

• Cash: $30,000
• Accounts Receivable: $50,000
• Inventory: $60,000
• Prepaid Expenses: $4,000
• Accounts Payable: $20,000
• Short-term Loans: $10,000
• Equipment: $200,000
• Accumulated Depreciation: $40,000
• Common Stock: $150,000
• Retained Earnings: $124,000

Requirements:

1. Prepare the balance sheet in a classified format.
2. Calculate the acid-test ratio.
3. Record the adjusting entries for the following:
   • Depreciation expense: $5,000
   • Prepaid expense adjustment: $1,000
4. Evaluate the company's financial health.
5. Explain the significance of retained earnings.