The adjusted trial balance of L. Farrish Corporation at May 31, 2014, follows:

Requirements
1. Prepare L. Farrish Corporation’s 2014 single step income statement, statement of retained earnings, and balance sheet. List expenses (except for income tax) in decreasing order on the income statement, and show total liabilities on the balance sheet.
2. Farrish’s lenders require that the company maintain a debt ratio no higher than 0.50. Compute Farrish’s debt ratio at May 31, 2014, to determine whether the company is in compliance with this debt restriction. If not, suggest a way L. Farrish Corporation could have avoided this difficultsituation.

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A1 L. Farrish Corporation Adjusted Trial Balance May 31, 2014 Deblt Credit Account Cash Accounts receivable 21,500 10,600 2,100 1,800 37,300 S Supplies Prepald rent Equipment 8 Accumulated depreciation, equipment 10 Interest payable 12 Income tax payable $3,600 8,700 S00 900 2,100 17,700 15,000 3,500 Accounts payable Unearned service revenue 13 Note payable Common stock Retained earnings Dividends Service revenue 6,000 90,600 1200 36,200 10,100 2600 3,600 2,500 7.100 1 Depreciation expense Salary expense 20 Rent expense 2 Interest expense 22 Insurance expense 3 Supplies expense Income tax expense 25 Total