The following account balances (arranged in no particular order) are for Dragons Breath Brew Pub, Inc., at December 31, 2016 after adjustments but before closing entries have been posted to the accounts:

Retained Earnings $ 52,500

Paid-in Capital in Excess of Par Value Common Stock 110,000

Sales 350,000

Bad Debts Expense 1,800

Mortgage Note Payable (due in year 2020 and excluding current portion) 230,000

Cash 22,000

Salaries Expense 70,000

Inventory 30,000

Depreciation Expense Building 10,000

Accounts Receivable 40,000

Utilities Expense 14,000

Building 250,000

Sales Returns and Allowances 10,000

Accounts Payable 35,000

Office Supplies 1,000

Advertising Expense 2,700

Land 50,000

Cost of Goods Sold 140,000

Allowance for Bad Debts 2,500

Rent Expense 12,000

Equipment 102,000

Insurance Expense 10,500

Accumulated Depreciation Building 10,000

Supplies Expense 12,500

Unearned Revenue 2,500

Interest Expense 15,000

Prepaid Insurance 5,000

Dividends 26,000

Short-term Investments 6,000

Depreciation Expense Equipment 3,000

Patent (net of amortization) 60,000

Accumulated Depreciation Equipment 42,000

Patent Amortization Expense 2,000

Payroll Tax Expense 9,000

Current Portion of Long-Term Debt 20,000

Common Stock (10,000 shares of $5 par value stock outstanding for the entire year) 50,000

Required:

a. Prepare an (Multi-step) Income Statement, a Statement of Retained Earnings and a (Classified) Balance Sheet for Dragons Breath Brew Pub, Inc., at December 31, 2016. You do not have to categorize operating expenses into selling and administrative expenses and they do not have to be shown in any particular order.

b. Evaluate Dragons Breath Brew Pub, Inc. from the standpoint of profitability and liquidity (industry averages for select ratios on the next page).

Select Ratios used throughout the course:

Ratio Industry Average

Acid Test (QuickRatio) 1.3

Current Ratio 2.1

Earnings Per Share $2.70

Gross Profit Percentage 50%

Rate of Return on Assets 6%

NOTE: assume Total Assets were $488,500 at December 31, 2015