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Comprehensive Problem Patricia Allison began an engineering consulting business on January 1, 2011, organized as a corporation (PA Engineering, Inc.) under the laws of Delaware. The annual reporting...

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Comprehensive Problem Patricia Allison began an engineering consulting business on January 1, 2011, organized as a corporation (PA Engineering, Inc.) under the laws of Delaware. The annual reporting period ends December 31, 2011. The trial balance on January 1, 2012, is provided in the following table:

PA Engineering Trial Balance, January 1, 2012
Account Titles Debit Credit
Cash $10,000
Accounts Receivable
Office Supplies $20,000
Land
Computers $80,000
Accumulated Depreciation (on computers)
Miscellaneous Other Assets $5,000
Accounts Payable
Salaries and Wages Payable
Interest Payable
Income Taxes Payable
Long-Term Notes Payable
Contributed Capital (100,000 shares) $115,000
Retained Earnings
Service Revenue
Depreciation Expense
Supplies Expense
Wages Expense
Interest Expense
Income Tax Expense
Remaining Expenses (not detailed to simplify)
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:

Set up T-accounts for the accounts on the trial balance and enter beginning balances. Prepare journal entries for transactions (a) through (k) and post them to the T-accounts. Journal and post the adjusting entries (l) through (p). Prepare an income statement (including earnings per share), statement of stockholders' equity, balance sheet, and statement of cash flows. Journal closing entries. 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%.)
Answered Same Day Apr 02, 2020

Solution

Aarti J answered on Apr 04 2020
142 Votes
Assessment 4, Comprehensive Problem Template
T-Accounts Beg
    Worksheet 1 of 9. Template for requirement 1: Set up T-accounts for the accounts on the trial balance and enter beginning balances.
    Learner:
    PA Engineering, Inc.
        Cash                    Accounts Receivable                    Office Supplies
    B. Bal    10,000.00                                    B. Bal    20,000.00
                            - 0    - 0                20,000.00    - 0
                            - 0                    20,000.00
        10,000.00    - 0
        10,000.00                Prepaid Expenses    Computers                    Miscellaneous Other Assets
                        B. Bal    80,000.00                B. Bal    5,000.00
        Land
                                                5,000.00
                            Accounts Payable
                                                Notes Payable
        Interest Payable
                            - 0    - 0
                                - 0
                                                Supplies Expense
        Income Tax Payable                    Salaries and Wages Payable
                                                Wages Expense
        Contributed Capital                    Accumulated Depreciation
            115,000.00    B. Bal
            115,000.00                                    Depreciation Expense
        Dividends Declared                    Service Revenue
        Remaining Expenses                    Interest Expense                    Income Tax Expense
                            Retained Earnings
    End of worksheet
Journal Entries
    Worksheet 2 of 9. Template for requirements 2 and 3, journal entries: Prepare journal entries for transactions (a) through (k) in columns A through D. Journal the adjusting entries (l) through (p) in columns G through I.
    Learner:
    PA Engineering, Inc.
        Transactions during 2012    DR    CR            Adjusting entries    DR    CR
        Debit is always first and credit is indented
    a.    Cash    20,000.00            l.    Supplies expense    27,000.00
        Note Payable        20,000.00            Prepaid Office Supplies        27,000.00
        Bo
owed cash                    (20000+25000-18000)
    b.    Land    10,000.00            m.    Depreciation expense    21,000.00
        Cash        10,000.00            Accumulated depreciation        21,000.00
        Purchased land
    c.    Cash    140,000.00            n.    Interest expense    1,000.00
        Accounts Receviable    60,000.00                Accrued Interest payable        1,000.00
        Service Revenue        200,000.00            ($20,000 x .1 x (6/12))
        Earned revenues for 2012
                        o.    Wages expense    15,000.00
    d.    Cash    4,600.00                Salaries and Wages payable        15,000.00
        Contributed Capital        4,600.00
        (4,000 shares @1.15 - market value)
                        p.    Income tax expense    10,000.00
    e.    Remaining Expenses    120,000.00                Income tax payable        10,000.00
        Cash        100,000.00
        Accounts Payable        20,000.00            Debits must equal Credits    74,000.00    74,000.00
        Incu
ed remaining expenses
    f.    Cash    40,000.00
        Accounts Receivable        40,000.00
        Collected on Accounts Receivable
    g.    Other Assets    8,000.00
        Cash        8,000.00
        Purchased other assets
    h.    Accounts Payable    18,000.00
        Cash        18,000.00
        Paid accounts payable
    i.    Office supplies    25,000.00
        Accounts Payable        25,000.00
        Purchased office supplies
    j.    No entry contract only
    k.    Cash Dividends    10,000.00
        Cash        10,000.00
        Declared and paid cash dividends
        Debits must equal Credits    455,600.00    455,600.00
    End of...
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