Inferring Year-End Adjustments, Computing Earnings per Share and Net Profit Margin, and Recording Closing Entries

Ramirez Company is completing the information processing cycle at its fiscal year-end, December 31, 2012. Following are the correct balances at December 31, 2012, for the accounts both before and after the adjusting entries for 2012.

Required:
1. Compare the amounts in the columns before and after the adjusting entries to reconstruct the adjusting entries made in 2012. Provide an explanation of each.
2. Compute the amount of income assuming that it is based on the amounts (a) before adjusting entries and (b) after adjusting entries. Which income amount is correct? Explain why.
3. Compute earnings per share, assuming that 3,000 shares of stock are outstanding all year.
4. Compute the net profit margin. What does this suggest to you about the company?
5. Record the closing entry at December 31,2012.

Trial Balance, December 31, 2012 Before After Adjusting Entries Adjustments Adjusting Entries Items Debit Credit Debit Credit Debit Credit $ 12,600 $ 12,600 a. Cash b. Accounts receivable 560 c. Prepaid insurance d. Equipment e. Accumulated depreciation, equipment 840 560 168,280 168,280 $ 54,000 $ 42,100 f. Income taxes payable g. Contributed capital 6,580 112,000 112,000 h. Retained earnings, January 1, 2012 19,600 19,600 i. Service revenue j. Salary expense k. Depreciation expense L. Insurance expense 64,400 64,960 56,380 56,380 11,900 280 m. Income tax expense 6,580 $238,100 $238,100 $257,140 $257,140