Question: Recording Transactions (including adjusting journal entries), Preparing Financial Statements, Closing the Books, and Analyzing a Key Ratio: Comprehensive Review Problem (Chapters 2, 3, and 4) Harry Hermann began operations of his machine shop (H-H Tool) on January 1, 2009. The annual reporting period ends December 31. The trial balance on January 1, 2011, follows (the amounts are rounded to thousands of dollars to simplify):
Transactions during 2011 (summarized in thousands of dollars) follow:
a. Borrowed $12 cash on a short-term note payable dated March 1, 2011.
b. Purchased land for future building site, paid cash, $9.
c. Earned $160 in Service Revenue for 2011, including $40 on credit and $120 collected in cash.
d. Received an additional $3 investment by H. Hermann.
e. Recognized $70 in Wages Expense for 2011, paid in cash, and $15 of Other Operating Expenses on credit.
f. Collected accounts receivable from customers, $24.
g. Purchased other assets, $10 cash.
h. Paid accounts payable, $13.
i. Purchased supplies on account for future use, $18.
j. Signed a $25 service contract to start February 1, 2012.
k. Paid $17 cash to H. Hermann on his drawing account. Data for adjusting journal entries follow:
l. Supplies counted on December 31, 2011, $10.
m. Depreciation for the year on the equipment, $6.
n. Accrued interest on notes payable, $1.
o. Wages earned by employees since the December 24 payroll not yet paid, $12.
p. Utility bill of $8 for December usage was received on December 31, 2011. It will be paid in 2012.
Required: 1. Set up T-accounts for the accounts on the trial balance and enter beginning balances.
2. Record journal entries for transactions ( a) through ( k) and post them to the T-accounts.
3. Prepare an unadjusted trial balance.
4. Record and post the adjusting journal entries ( l) through ( p).
5. Prepare an adjusted trial balance.
6. Prepare a classified income statement, statement of owner's equity, and classified balance sheet.
7. Prepare and post the closing journal entries.
8. Prepare a post-closing trial balance.
9. How much net income did H-H Tool generate during 2011? Is the company financed primarily by debt or equity?
10. Compute and interpret the net profit margin for H-H Tool for the year ended December 31, 2011.