Drake Company reported the following for 2017:
Current assets..................................$87,000
Current liabilities................................19,000
Revenues.......................................450,000
Cost of goods sold............................220,000
Noncurrent assets..............................186,000
Bonds payable (10%, issued at par).........100,000
Preferred stock, $5, $100 par..................20,000
Common stock, $10 par........................50,000
Paid‐in capital in excess of par...............48,000
Operating expense......................................64,000
Retained earnings..............................36,000
Common stockholders received a $2 dividend during the year. The preferred stock is noncumulative and nonparticipating.
Required:
a. Ignoring income taxes, prepare an income statement and balance sheet for Drake Company at December 31, 2017, that is consistent with each of the following theories of equity:
i. Entity theory
ii. Proprietary theory
iii. Residual equity theory
b. For each theory cited above, compute the December 31, 2017, debt‐to‐equity ratio. If none would be computed, discuss why.
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