COMP4-2 Recording Transactions (Including Adjusting and Closing Entries), Prepariug a Complete Set of Financial Statements, and Serena and Bill Davis began operations of their furniture repair shop, Rumours Furniture Inc, on January 1, 2016. The company's fiscal year ends December 31. The trial balance on January 1.2020, was as follows (in thousands of dollars): \begin{tabular}{ll} 05 & Equipment \\ 06 & Accumulated depreciation (equipment) \\ 07 & Other assets (not detailed, to simplify) \\ 11 & Accounts payable \\ 12 & Notes payable \\ 13 & Wages payable \\ 14 & Interest payable \\ 15 & Income taxes payable \\ 16 & Deferred revenuc \\ 21 & Contributed capital (15,000 shares) \\ 31 & Retained earnings \\ 35 & Service revenue \\ 40 & Depreciation expense \\ 41 & Income tax expense \\ 42 & Interest expense \\ 43 & Other expenses \\ \hline 226 \\ \hline 15 & Totals \\ \hline 15 \end{tabular} Transactions during 2020 (summarized in thousands of dollars) follow: a. Borrowed \$25 cash on July 1, 2020, on an 8 percent note, payable on June 30, 2021 . b. Purchased equipment for $18 eash on July 1, 2020. c. Sold 5,000 additional shares for $1 cash per share. d. Earned revenues for 2020:$74, including $15 on credit. e. Recognized other expenses for 2020:$35, including $9 on credit. f. Purchased additional small-tools inventory, $3 cash. s. Collected accounts receivable, $8. h. Paid accounts payable, $11. i. Purchased supplies on account, $10 (debit to Account No. 03). j. Received a $3 deposit on work to start January 15,2021. k. Declared and paid cash dividend, $12. Data for adjusting entries are as follows: I Service supplies inventory of \$4 and small-tools inventory of $9 on hand at December 31,2020 (debit other expenses account). m. Depreciation on the equipment estimated at $4 per year. 14. Accrued interest on notes payable (to be computed). o. Wages earned sinee the December 24 pay date but not yet paid, $4. p. Income tax expense payable in 2021, $4. Reyuind: 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 2020 , 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. 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
