Chapter 2, Problem 2.40BP

(1)

To determine

Income statement: The financial statement which reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period is referred to as income statement.

Statement of retained earnings: This statement reports the beginning retained earnings and all the changes which led to ending retained earnings. Net income from income statement is added to and dividends is deducted from beginning retained earnings to arrive at the end result, ending retained earnings.

Balance sheet: This financial statement reports a company’s resources (assets) and claims of creditors (liabilities) and stockholders (stockholders’ equity) over those resources, on a specific date. The resources of the company are assets which include money contributed by stockholders and creditors. Hence, the main elements of the balance sheet are assets, liabilities, and stockholders’ equity. Balance sheet is also called as Statement of Financial Position.

Debt ratio: The financial ratio which gauges the percentage of assets financed by debt is referred to as debt ratio.

Formula to compute debt ratio:

$\text{Debt ratio = }\frac{\text{Total liabilities}}{\text{Total assets}}$

To prepare: Income statement of SS for the month ended July 31, 2018.

(2)

To determine

To prepare: Statement of retained earnings of SS for the month ended July 31, 2018

(3)

To determine

To prepare: Balance sheet of SS as of July 31, 2018

(4)

To determine

The debt ratio of SS as of July 31, 2018.