PA Engineering Trial Balance, January 1, 2012

Account Titles	Debit	Credit
Cash	$10,000	Â
Accounts Receivable	Â	Â
Office Supplies	$20,000	Â
Land	Â	Â
Computers	$80,000	Â
Accumulated Depreciation (on computers)	Â	Â
Miscellaneous Other Assets	$5,000	Â
Accounts Payable	Â	Â
Salaries and Wages Payable	Â	Â
Interest Payable	Â	Â
Income Taxes Payable	Â	Â
Long-Term Notes Payable	Â	Â
Contributed Capital (100,000 shares)	Â	$115,000
Retained Earnings	Â	Â
Service Revenue	Â	Â
Depreciation Expense	Â	Â
Supplies Expense	Â	Â
Wages Expense	Â	Â
Interest Expense	Â	Â
Income Tax Expense	Â	Â
Remaining Expenses (not detailed to simplify)	Â	Â
Totals	$115,000	$115,000

Transactions during 2012 are as follows:

• a. Borrowed $20,000 cash on a five-year, 10 percent note payable, dated July 1, 2012.
• b. Purchased land for a future building site; paid cash, $10,000.
• c. Earned $200,000 in revenues for 2012, including $60,000 on credit and the rest in cash.
• d. Sold 4,000 additional shares of capital stock for cash at $1.15 market value per share on January 3, 2012.
• e. Incurred $120,000 in remaining expenses for 2012, including $20,000 on credit and the rest paid in cash.
• f. Collected accounts receivable, $40,000.
• g. Purchased other assets for $8,000 cash.
• h. Paid accounts payable, $18,000.
• i. Purchased office supplies on account for future use, $25,000.
• j. Signed a three-year, $33,000 service contract to start February 1, 2013.
• k. Declared and paid cash dividends, $10,000.

Data for adjusting entries:

• l. Supplies counted on December 31, 2012, $18,000.
• m. Depreciation for the year on the equipment, $21,000.
• n. Interest accrued on notes payable (to be computed).
• o. Wages earned by employees since the December 24 payroll but not yet paid, $15,000.
• p. Income tax expense, $10,000, payable in 2013.

Complete the following for this problem:

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. Journal 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. Journal closing entries.
6. Compute the following ratios for 2012 and explain what the results suggest about the company.
   • Current ratio. (Industry average is 2.2 to 1.0.)
   • Total asset turnover. (Industry average is 3 times a year.)
   • Net profit margin. (Industry average is 5.00%.)