Gilca Ltd. is completing the information processing cycle at the end of its fiscal year, December 31, 2011. The correct account balances at December 31, 2011, both before and after the adjusting entries for 2011, are shown on the following page.

Required:
1. Compare the amounts in the columns before and after the adjusting entries to reconstruct the adjusting entries made in 2011. Provide an explanation for each adjustment.
2. Compute the profit for 2011 , assuming that it is based on the amounts

(a) before adjusting entries and

(b) after adjusting entries. Which profit amount is correct? Explain.
3. Compute the earnings per share, assuming that 5,000 shares are outstanding.
4. Compute the net profit margin. What does this suggest to you about the company?
5. Compute the return on equity, assuming that share capital did not change during the year. What does the computed ratio suggest to you about the company?
6. Prepare the closing entries at December 31, 2011.

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Before Adjusting Entries Trial Balance, December 31, 2011 After Adjustments Adjusting Entries Credit Debit Credit Debit $ 18,000 Credit 1,500 800 210,000 $ 70,000 6,500 8,000 Items Debit a. Cash h. Service revenue receivable c. Prepayments $ 18,000 1,200 d. Property, plant, and equipment 210,000 e. Accumulated depreciation, PP&E $52,500 f. Income taxes payable g. Deferred revenue h. Share capital i. Retained earnings, January 1, 2011 j. Service revenue 16,000 110,000 21,700 83,000 54,000 110,000 21,700 92,500 k. Salary expense 1. Depreciation expense 54,000 17,500 400 m. Rent expense 6,500 n. Income tax expense $283,200 $283.200 $308,700 $308,700