Recording Transactions (Including Adjusting and ClosingEntries), Preparing Financial Statements, and Performing RatioAnalysis Ben and Kelly Perry began operations of their Roof repaircompany (Perry Roofing, Inc.) on January 1, 2015. The annualreporting period ends December 31. The trial balance on January 1,2016, was as follows:
| Debit | Cash |
| Cash | 12,000 | |
| Accounts receivable | 4,000 | |
| Supplies | 8,000 | |
| Equipment | | |
| Accumulated Depreciation (on equipement) | | |
| Other assets (not detailed to simplify) | 9,000 | |
| Accounts Payable | | 14,000 |
| Notes Payable | | |
| Wages Payable | | |
| Interest Payable | | |
| Income Taxes Payable | | |
| Unearned Revenue | | |
| Common Stock (60,000 shares, 0.10 par value) | | 6,000 |
| Additional Paid-in Capital | | 9,000 |
| Retained Earnings | | 4,000 |
| Service Revenue | | |
| Depreciation Expense | | |
| Supplier Expense | | |
| Wage Expense | | |
| Interest Expense | | |
| Income Tax Expense | | |
| Remaining Expense (not detailed to simplify) | | |
| Totals | 33,000 | 33,000 |
| | |
Transactions during 2016 follow:
a. Borrowed $28,000 cash on July 1, 2016, signing a one-year, 10percent note payable.
b. Purchased equipment for $18,000 cash on July 1, 2016.
c. Sold 10,000 additional shares of capital stock for cash at$0.50 market value per share at the beginning of the year.
d. Earned $75,000 in revenues for 2016, including $16,000 oncredit and the rest in cash.
e. Incurred remaining expenses of $35,000 for 2016, including$7,000 on credit and the rest paid with cash.
f. Purchased $3,000 of supplies on cash.
g. Collected accounts receivable, $8,000.
h. Paid accounts payable, $11,000.
i. Purchased $10,000 of supplies on account.
j. Received a $3,000 deposit on work to start January 15,2017.
k. Declared and paid a cash dividend, $10,000.
Data for adjusting entries:
l. Supplies of $9,000 were counted on December 31, 2016.
m. Depreciation for 2016, $2,000.
n. Interest accrued on notes payable (to be computed).
o. Wages earned since the December 24 payroll but not yet paid,$3,000.
p. Income tax expense was $4,000, payable in 2017.
QUESTIONS TO ANSWER:
1. Set up T-accounts for the accounts on the trial balance andenter beginning balances.
2. Prepare journal entries for transactions (a) through (k) andpost them to the T-accounts.
3. Journalize and post the adjusting entries (l) through(p).
4. Prepare an income statement (including earnings per share),statement of stockholders' equity, and balance sheet.
5. Identify the type of transaction for (a) through (k) for thestatement of cash flows (O for operating, I for investing, F forfinancing), and the direction and amount of the effect.
6. Journalize and post the closing entry.
7. Compute the following ratios for 2016 and explain what theresults suggest about the company:
a. Current ratio
b. Total asset turnover
c. Net profit margin
