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STU Ltd. has the following balances as of August 31, 2025: Account Amount Cash $17,000 Accounts Receivable $16,000 Inventory $20,000 Prepaid Insurance $2,600 Building $65,000

STU Ltd. has the following balances as of August 31, 2025:

Account

Amount

Cash

$17,000

Accounts Receivable

$16,000

Inventory

$20,000

Prepaid Insurance

$2,600

Building

$65,000

Accumulated Depreciation

$13,000

Accounts Payable

$16,000

Notes Payable

$7,000

Long-Term Debt

$30,000

Common Stock

$55,000

Retained Earnings

$18,600

Requirements:

  1. Create a classified balance sheet.
  2. Calculate the current ratio and quick ratio.
  3. Evaluate STU Ltd.'s short-term financial health.
  4. Prepare adjusting journal entries for:
    • Depreciation expense: $6,500
    • Insurance expense: $1,300
  5. Discuss how adjusting entries ensure the accuracy and completeness of financial reports.

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