Reference no: EM133148610
Question - Recording Transactions (Including Adjusting and Closing Entries), Preparing Financial Statements, and Performing Ratio Analysis - Josh and Kelly McKay began operations of their Roof repair company (McKay Roofing, Inc.) on January 1, 2020. The annual reporting period ends December 31. The trial balance on January 1, 2021, was as follows:
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Debit
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Credit
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Cash
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8,000
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Accounts Receivable
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5,000
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Supplies
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9,000
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Equipment
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Accumulated Depreciation (on equipment)
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Intangible assets (long term, not detailed to simplify)
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10,000
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Accounts Payable
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7,000
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Notes Payable
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Wages payable
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Interest Payable
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Income Taxes Payable
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Unearned revenue
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Common Stock (60,000 shares, $0.10 par value)
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6,000
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Additional Paid-in Capital
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11,000
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Retained Earnings
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8,000
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Service revenue
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Depreciation expense
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Supplier expense
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Wage Expense
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General and Administrative
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Interest Expense
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Income Tax Expense
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Totals
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32,000
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32,000
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Transactions during 2021 follow:
a. Borrowed $36,000 cash on July 1, 2021, signing a one-year, 10 percent note payable.
b. Purchased equipment for $18,000 cash on July 1, 2021.
c. Sold 10,000 additional shares of capital stock for cash at $0.90 market value per share at the beginning of the year.
d. Earned $100,000 in revenues for 2021, including $22,000 on credit and the rest in cash.
e. Incurred General and Administrative expenses of $45,000 for 2021, including $10,000 on credit and the rest paid with cash.
f. Purchased $4,000 of supplies on cash.
g. Collected accounts receivable, $9,000.
h. Paid accounts payable, $10,000.
i. Purchased $11,000 of supplies on account.
j. Received a $4,000 deposit on work to start January 15, 2022.
k. Declared and paid a cash dividend, $7,000.
Data for adjusting entries:
l. Supplies of $5,000 were counted on December 31, 2021.
m. Depreciation for 2021, $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 $8,000, payable in 2022.
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 the adjusting entries (l) through (p) and post them to the T-accounts.
4. Prepare:
i. an income statement (including earnings per share),
ii. statement of stockholders' equity, and
iii. balance sheet.
iv. 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 (+or -) and amount of the effect.
v. Journalize the closing entry and post the closing entry to the T-accounts.
5. Compute the following ratios for 2021 and explain what the results suggest about the company: Current ratio, Total asset turnover and Net profit margin.