Patricia Allison began an engineering consulting business on January 1, 2011, organized as a corporation (PA Engineering, Inc.) under the laws of Delaware. The annual reporting period ends December 31. The trial balance on January 1, 2012, is provided in the following table:

$10,000
$20,000
$80,000
$5,000
$115,000
$115,000	$115,000

Transactions during 2012 are as follows:

1. Borrowed $20,000 cash on a five-year, 10 percent note payable, dated July 1, 2012.
2. Purchased land for a future building site; paid cash, $10,000.
3. Earned $200,000 in revenues for 2012, including $60,000 on credit and the rest in cash.
4. Sold 4,000 additional shares of capital stock for cash at $1.15 market value per share on January 3, 2012.
5. Incurred $120,000 in remaining expenses for 2012, including $20,000 on credit and the rest paid in cash.
6. Collected accounts receivable, $40,000.
7. Purchased other assets for $8,000 cash.
8. Paid accounts payable, $18,000.
9. Purchased office supplies on account for future use, $25,000.
10. Signed a three-year, $33,000 service contract to start February 1, 2013.
11. Declared and paid cash dividends, $10,000.

Data for adjusting entries:

1. Supplies counted on December 31, 2012, $18,000.
2. Depreciation for the year on the equipment, $21,000.
3. Interest accrued on notes payable (to be computed).
4. Wages earned by employees since the December 24 payroll but not yet paid, $15,000.
5. Income tax expense, $10,000, payable in 2013.

Complete the following for this problem:

• Set up T-accounts for the accounts on the trial balance and enter beginning balances.
• Prepare journal entries for transactions (a) through (k) and post them to the T-accounts.
• Journalize and post the adjusting entries (l) through (p).
• Prepare an income statement (including earnings per share), statement of stockholders' equity, balance sheet, and statement of cash flows.
• Journalize.
• Compute the following ratios for 2012 and explain what the results suggest about the company.
  • Current ratio. (Industry average is 2.2 to 1.0.)
  • Total asset turnover. (Industry average is 3 times a year.)
  • Net profit margin. (Industry average is 5.00%.)