Recording Transactions (Including Adjusting and Closing Entries), Preparing Financial Statements and Performing Ratio Analysis

Ben and Kelly Perry began operations of their Roof repair company (Perry Roofing, Inc.) on January 1, 2018. The annual reporting period ends December 31. The trial balance on January 1, 2019, was as follows:

	Debit	Credit
Cash	9,000
Accounts Receivable	4,000
Supplies	7,000
Equipment
Accumulated Depreciation (on equipment)
Other assets (not detailed to simplify)	9,000
Accounts Payable		10,000
Notes Payable
Wages payable
Interest Payable
Income Taxes Payable
Unearned revenue
Common Stock (60,000 shares, $0.10 par value)		6,000
Additional Paid-in Capital		9,000
Retained Earnings		4,000
Service revenue
Depreciation expense
Supplier expense
Wage Expense
General and Administrative
Interest Expense
Income Tax Expense
Totals	29,000	29,000

Transactions during 2019 follow:

1. Borrowed $20,000 cash on July 1, 2019, signing a one-year, 10 percent note payable.
2. Purchased equipment for $18,000 cash on July 1, 2019.
3. Sold 10,000 additional shares of capital stock for cash at $0.80 market value per share at the beginning of the year.
4. Earned $80,000 in revenues for 2019, including $12,000 on credit and the rest in cash.
5. Incurred General and Administrative expenses of $32,000 for 2019, including $7,000 on credit and the rest paid with cash.
6. Purchased $4,000 of supplies on cash.
7. Collected accounts receivable, $6,000.
8. Paid accounts payable, $11,000.
9. Purchased $10,000 of supplies on account.
10. Received a $2,500 deposit on work to start January 15, 2020.
11. Declared and paid a cash dividend, $9,000.

Data for adjusting entries:

12. Supplies of $7,000 were counted on December 31, 2019.

13. Depreciation for 2019, $2,000.
14. Interest accrued on notes payable (to be computed).
15. Wages earned since the December 24 payroll but not yet paid, $3,500.
16. Income tax expense was $6,000, payable in 2020.

Required:

1. Set up T-accounts for the accounts on the trial balance and enter beginning balances.
2. Prepare journal entries for transactions (a) through (k) and post them to the T-accounts.
3. Journalize and post the adjusting entries (l) through (p).
4. Prepare an income statement (including earnings per share), statement of stockholders' equity, and balance sheet.
5. Identify the type of transaction for (a) through (k) for the statement of cash flows (O for operating, I for investing, F for financing), and the direction and amount of the effect.
6. Journalize and post the closing entry.
7. Compute the following ratios for 2019 and explain what the results suggest about the company:
   1. Current ratio
   2. Total asset turnover
   3. Net profit margin