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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
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:
- Borrowed $20,000 cash on a five-year, 10 percent note payable, dated July 1, 2012.
- Purchased land for a future building site; paid cash, $10,000.
- Earned $200,000 in revenues for 2012, including $60,000 on credit and the rest in cash.
- Sold 4,000 additional shares of capital stock for cash at $1.15 market value per share on January 3, 2012.
- Incurred $120,000 in remaining expenses for 2012, including $20,000 on credit and the rest paid in cash.
- Collected accounts receivable, $40,000.
- Purchased other assets for $8,000 cash.
- Paid accounts payable, $18,000.
- Purchased office supplies on account for future use, $25,000.
- Signed a three-year, $33,000 service contract to start February 1, 2013.
- Declared and paid cash dividends, $10,000.
Data for adjusting entries:
- Supplies counted on December 31, 2012, $18,000.
- Depreciation for the year on the equipment, $21,000.
- Interest accrued on notes payable (to be computed).
- Wages earned by employees since the December 24 payroll but not yet paid, $15,000.
- 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%.)
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