Brothers Anthony and Christopher Gaber began operations of their tool and die shop (A & C Tools Inc.) on January 1, 2013. The company’s fiscal year ends on December 31. The trial balance on January 1, 2014, was as follows:
Transactions and events during 2014 are as follows:
a. Borrowed $ 10,000 cash on a 12 percent note payable, dated March 1, 2014.
b. Purchased land for future building site; paid cash, $ 9,000.
c. Earned revenues for 2014 of $ 160,000, including $ 50,000 on credit.
d. Sold 3,000 additional shares for $ + cash per share.
e. Recognized other expenses for 2014, $ 85,000, including $ 20,000 on credit.
f. Collected trade receivables, $ 24,000.
g. Purchased additional assets, $ 10,000 cash (debit other assets account).
h. Paid trade payables, $ 13,000.
i. Purchased service supplies on account, $ 18,000 (debit to Account No. 03).
j. Signed a $ 25,000 service contract to start February 1, 2015.
k. Declared and paid cash dividend, $ 15,000. Data for adjusting entries are as follows:
l. Service supplies inventory on hand at December 31, 2014, $ 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).
o. Wages earned since the December 24 pay date but not yet paid, $ 15,000. p. Income tax expense for 2014 payable in 2015, $ 8,000.
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), a statement of changes in equity for 2014, and a statement of financial position at December 31, 2014.
5. Record and post the closing entries.
6. Prepare a post- closing trial balance.
7. Compute the following ratios for 2014 and explain what they mean:
a. Current ratio
b. Total asset turnover ratio
c. Net profit margin ratio
d. Return on equity

  • CreatedAugust 04, 2015
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