Question: Recording Transactions Including Adjusting and Closing Entries

Recording Transactions (Including Adjusting and Closing Entries), Preparing a Complete Set of Financial Statements, and Performing Ratio Analysis
Josh and Kelly McKay began operations of their furniture repair shop (Furniture Refinishers, Inc.) on January 1, 2012. The annual reporting period ends December 31. The trial balance on January 1, 2013, was as follows:


Transactions during 2013 follow:
a. Borrowed $20,000 cash on July 1, 2013, signing a one-year, 10 percent note payable.
b. Purchased equipment for $18,000 cash on July 1, 2013.
c. Sold 5,000 additional shares of capital stock for cash at $1 market value per share at the beginning of the year.
d. Earned $70,000 in revenues for 2013, including $14,000 on credit and the rest in cash.
e. Incurred remaining expenses of $35,000 for 2013, including $7,000 on credit and the rest paid with cash.
f. Purchased additional small tools, $3,000 cash.
g. Collected accounts receivable, $8,000.
h. Paid accounts payable, $11,000.
i. Purchased $10,000 of supplies on account.
j. Received a $3,000 deposit on work to start January 15, 2014.
k. Declared and paid a cash dividend, $10,000.
Data for adjusting entries:
l. Supplies of $4,000 and small tools of $8,000 were counted on December 31, 2013 (debit Remaining Expenses).
m. Depreciation for 2013, $2,000.
n. Interest accrued on notes payable (to be computed).
o. Wages earned since the December 24 payroll but not yet paid, $3,000.
p. Income tax expense was $4,000, payable in 2014.
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, balance sheet, and statement of cash flows.
5. Journalize and post the closing entry.
6. Compute the following ratios for 2013 and explain what the results suggest about the company:
a. Current ratio
b. Total asset turnover
c. Net profitmargin
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  • CreatedDecember 12, 2011
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