PQR Enterprises reports the following data:

Assets:

• Cash: $5,000
• Accounts Receivable: $12,000
• Inventory: $20,000
• Prepaid Expenses: $3,000

Liabilities:

• Accounts Payable: $7,000
• Short-term Debt: $10,000

Equity:

• Common Stock: $15,000
• Retained Earnings: $8,000

Requirements:

1. Prepare a statement of financial position.
2. Compute the current ratio and quick ratio.
3. Discuss the solvency position of PQR Enterprises.
4. Journalize the following adjustments:
   • Depreciation of equipment: $1,200
   • Allowance for doubtful accounts: $600
5. Explain the importance of prepaid expenses in accounting.