Question 4

(20 marks)

John Tell created Tennis Rackets, a proprietorship, in 2015. Tennis Rackets produced a post-closing trial balance on December 31 2018, which included the following:

Tennis Rackets
Post-Closing Trial Balance
December 31, 2018
ACCOUNT	DEBIT	CREDIT
Cash	$ 30,000
Accounts Receivable	80,000
Supplies	5,000
Prepaid Insurance	6,000
Office Equipment	130,000
Accumulated Amortization, Office Equipment		$ 60,000
Building	300,000
Accumulated Amortization, Building		45,000
Land	400,000
Accounts Payable		49,000
Salary Payable		80,000
Unearned Service Revenue		25,000
Note Payable, Long Term		55,000
Mortgage Payable		450,000
John Tell, Capital		187,000
Total	$ 951,000	$ 951,000

Required:

1. Prepare a December 31, 2018 classified balance sheet for Tennis Rackets.
2. Calculate Tennis Rackets current ratio and debt ratio at December 31, 2018.

Note that 1 year ago, the current ratio was 1.25, and the debt ratio was 0.96. Did Tennis Rackets ability to pay debts improve or deteriorate during 2018?