Aubrae and Tylor Williamson began operations of their furniture repair shop (Furniture Refinishers, Inc.) on January 1, 2019. The annual reporting period ends December 31. The trial balance on January 1, 2020, was as follows: Furniture Refinishers, Inc.
Trial Balance on January 1, 2020
Account Titles Debit credit
Cash 5,000
Accounts receivable 4,000
Supplies 6,000
Small tools 6,000
Equipment
Accumulated depreciation (on equipment)
Other noncurrent assets (not detailed to simplify) 8,000
Accounts payable 10000
Dividends payable
Notes payable
Wages payable
Interest payable
Income taxes payable
Unearned revenue
Common stock (40,000 shares, $0.10 par value) 4000
Additional paid-in capital 6000
Retained earnings 9000
Service revenue
Depreciation expense
Wages expense
Interest expense
Income tax expense
Miscellaneous expenses (not detailed to simplify)
Totals 29,000 29,000
Transactions during 2020 follow:
Borrowed $20,000 cash on July 1, 2020, signing a one-year, 10 percent note payable.
Purchased equipment for $18,000 cash on July 1, 2020.
Sold 10,000 additional shares of capital stock for cash at $0.50 market value per share at the beginning of the year.
Earned $70,000 in revenues for 2020, including $14,000 on credit and the rest in cash.
Incurred $27,000 in wages expense and $8,000 in miscellaneous expenses for 2020, with $7,000 on credit and the rest paid with cash.
Purchased additional small tools, $3,000 cash.
Collected accounts receivable, $8,000.
Paid accounts payable, $11,000.
Purchased $10,000 of supplies on account.
Received a $3,000 deposit on work to start January 15, 2021.
Declared a cash dividend on December 1, $10,000; paid on December 31.
Prepare two entries.
Data for adjusting entries:
Supplies of $4,000 and small tools of $8,000 were counted on December 31, 2020 (debit Miscellaneous Expenses).
Depreciation for 2020, $2,000.
Interest accrued on notes payable (to be computed).
Wages earned since the December 24 payroll but not yet paid, $3,000.
Income tax expense was $4,000, payable in 2021.
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 rounded to two decimal places), 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 (rounded to two decimal places) for 2020 and explain what the results suggest about the company:
a. Current ratio
b. Total asset turnover
c. Net profit margin