COMP4-1 Recording Transactions (Including Adjusting and Closing Entries), Preparing a Complete Set of Financial Statements, and Performing Ratio Analysis L04-1, 42, 43, 44 Brothers Anthony and Christopher Gaber began operations of their tool and die shop (A & C Tools Inc.) on January 1, 2019. The company's fiscal year ends on December 31. The trial balance on January 1, 2020, was as follows: Account No. Account Titles Debit Credit 01 Cash $ 3,000 02 5,000 Accounts receivable Service supplies inventory Land 03 12.000 04 05 60,000 06 $ 6,000 Equipment Accumulated depreciation (equipment) Other assets (not detailed, to simplify) Accounts payable Notes payable 07 4.000 11 5,000 12 13 14 15 21 65.000 31 8,000 35 Wages payable Interest payable Income taxes payable Contributed capital (65,000 shares) Retained earnings Service revenue Depreciation expense Income tax expense Interest expense Other expenses Totals 40 41 42 43 $84.000 $84.000 Transactions and events during 2020 are as Page 234 follows: a. Borrowed $10,000 cash on a 6 percent note payable, dated March 1, 2020. b. Purchased land for future building site; paid cash, $9,000. c. Earned revenues for 2020 of $160,000, including $50,000 on credit. d. Sold 3,000 additional shares for $1 cash per share. e. Recognized other expenses for 2020, $85,000, including $20,000 on credit. . Collected accounts receivable, $24,000. g. Purchased additional assets, $10,000 cash (debit other assets account). h. Paid accounts payable, $13,000. 1. Purchased service supplies on account, $18,000 (debit to Account No. 03). j. Signed a $25,000 service contract to start February 1, 2021. k. Declared and paid cash dividend, $15,000. Data for adjusting entries are as follows: Service supplies inventory on hand at December 31, 2020, $12,000 (debit other expenses account). m. Depreciation on the equipment estimated at $6,000 per year. n. Accrued interest on notes payable (to be computed). 0. Wages earned since the December 24 pay date but not yet paid $15,000. p. Income tax expense for 2020 payable in 2021, $8,000 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 (1) through 4. Prepare a statement of earnings (including earnings per share), a statement of changes in equity for 2020, and a statement of financial position at December 31, 2020. 5. Record and post the closing entries. 6. Prepare a post-closing trial balance. 1 ...... 7. Compute the following ratios for 2020 and explain what they mean: a. Current ratio b. Total asset turnover ratio c. Net profit margin ratio d. Return on equity
