Recording Transactions (Including Adjusting and Closing Entries), Preparing a Complete Set of Financial Statements, and Performing Ratio Analysis
Brothers Mike and Tim Hargen began operations of their tool and die shop (H & H Tool, Inc.) on January 1, 2011. The annual reporting period ends December 31. The trial balance on January 1, 2012, follows:

Transactions during 2012 follow:
a. Borrowed $12,000 cash on a five-year, 10 percent note payable, dated March 1, 2012.
b. Purchased land for a future building site; paid cash, $12,000.
c. Earned $208,000 in revenues for 2012, including $52,000 on credit and the rest in cash.
d. Sold 4,000 additional shares of capital stock for cash at $1 market value per share on January 1, 2012.
e. Incurred $111,000 in Remaining Expenses for 2012, including $20,000 on credit and the rest paid in cash.
f. Collected accounts receivable, $34,000.
g. Purchased other assets, $13,000 cash.
h. Paid accounts payable, $19,000.
i. Purchased supplies on account for future use, $23,000.
j. Signed a three-year $33,000 service contract to start February 1, 2013.
k. Declared and paid cash dividends, $22,000.
Data for adjusting entries:
l. Supplies counted on December 31, 2012, $18,000.
m. Depreciation for the year on the equipment, $8,000.
n. Interest accrued on notes payable (to be computed).
o. Wages earned by employees since the December 24 payroll but not yet paid, $16,000.
p. Income tax expense, $10,000, payable in 2013.
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 2012 and explain what the results suggest about the company:
a. Current ratio
b. Total asset turnover
c. Net profitmargin

Account Titles Debit Credit $ 4,000 Cash 7.000 Accounts receivable Supplies 16,000 Land Equipment Accumulated depreciation (on equipment) 78,000 $ 8,000 Other assets (not detailed to simplify) 5,000 Accounts payable Wages payable Interest payable Income taxes payable Long-term notes payable Contributed capital (85,000 shares) 85,000 Retained earnings 17,000 Service revenue Depreciation expense Supplies expense Wages expense Interest expense Income tax expense Remaining expenses (not detailed to simplify) Totals $110,000 $110,000