Serena and Bill Davis began operations of their furniture repair shop, Rumours Furniture Inc., on January 1, 2013. The company€™s fiscal year ends December 31. The trial balance on January 1, 2014, was as follows (in thousands of dollars):

Transactions during 2014 (summarized in thousands of dollars) follow:
a. Borrowed $ 25 cash on July 1, 2014, on an 8 percent note, payable on June 30, 2015.
b. Purchased equipment for $ 18 cash on July 1, 2014.
c. Sold 5,000 additional shares for $ + cash per share.
d. Earned revenues for 2014: $ 74, including $ 15 on credit.
e. Recognized other expenses for 2014: $ 35, including $ 9 on credit.
f. Purchased additional small- tools inventory, $ 3 cash.
g. Collected trade receivables, $ 8.
h. Paid trade payables, $ 11.
i. Purchased supplies on account, $ 10 (debit to Account No. 03).
j. Received a $ 3 deposit on work to start January 15, 2015. k. Declared and paid cash dividend, $ 12.
Data for adjusting entries are as follows:
l. Service supplies inventory of $ 4 and small- tools inventory of $ 9 on hand at December 31, 2014 (debit other expenses account). m. Depreciation on the equipment estimated at $ 4 per year. n. Accrued interest on notes payable (to be computed).
o. Wages earned since the December 24 pay date but not yet paid, $
4. p. Income tax expense payable in 2015, $ 4.
Required:
1. Set up T- accounts for the accounts on the trial balance and enter their beginning balances.
2. Record transactions (a) through (k) and post them to the T- accounts.
3. Record and post the adjusting entries (l) through (p).
4. Prepare a statement of earnings (including earnings per share) for 2014, a statement of changes in equity for 2014, and a statement of financial position at December 31, 2014.
5. Record and post the closing entries.
6. Prepare a post- closing trial balance.
7. Compute the following ratios for 2014 and explain what they mean:
a. Current ratio
b. Total asset turnover ratio
c. Net profit margin ratio
d. Return on equity

Transcribed Image Text:

Account No. Account Titles Debit $ 5 Credit 01 Cash 02 Trade receivables 03 Supplies inventory 04 Small-tools inventory 05 Equipment 06 Accumulated depreciation (equipment) 07 Other assets (not detailed to simplity) 11 Trade payables 12 Notes payable 13 Wages payable 14 Interest payable 15 ncome taxes payable 16 Deferred revenue 21 Contributed capital (15,000 shares) 31 Retained earnings 35 Service revenue 40 Depreciation expense 41 ncome tax expense 42 Interest expense 43 Other expenses 6 15 4 Totals $26 $26