5-2 Financial Statements under Various Theories of Equity Drake Company reported the following for 2008: 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 expenses 64,000 Retained earnings 36,000 Common stockholders received a $2 dividend during the year. The preferred stock is noncumulative and nonparticipating.
a. Ignoring income taxes, prepare an income statement and balance sheet for Drake Company at December 31, 2008, 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, 2008, debt-to- equity ratio. If none would be computed, discuss why.