P5-4 The December 31, 1996 balance sheet for Morrison Home Services is summarized below. (Preparing the four financial statements) Assets Liabilities and Stockholders Cash $10,000 Liabilities $ 6,000 Receivables 4,000 Common stock 10,000 Long-term assets 10,000 Retained earnings Total liabilities and 8,000 Total assets $24,000 stockholders’ equity $ 24.000 During January of 1997 the following transactions were entered into: 1. Services were performed for $7,000 cash. 2. $3,000 cash was received from customers on outstanding accounts receivable. 3. $3,000 cash was paid for outstanding liabilities. 4. Long-term assets were purchased in exchange for a $6,000 note payable. 5. Expenses of $4,000 were paid in cash. 6. A dividend of $800 was issued to the owners. REQUIRED:

a. Provide a journal entry for each transaction.

b. Treat each transaction independently and describe how each would affect Morrison’s cur¬ rent ratio, return on equity, and debt/equity ratio.

c. Prepare the income statement, statement of retained earnings, the January 31 balance sheet, and statement of cash flows for January.