Inferring Year-End Adjustments, Computing Earnings per Share and Net Profit Margin,and Recording Closing Entries (AP4-6)
Ramirez Company is completing the information processing cycle at its fiscal year-end, December 31, 2012. Following are the correct balances at December 31, 2012, for the accounts both before and after the adjusting entries for 2012.
Trial Balance, December 31, 2012 | ||||||
Items | Before Adjusting Entries | Adjustments | After Adjusting Entries | |||
Debit | Credit | Debit | Credit | Debit | Credit | |
a. Cash | $12.600 |
|
|
| $12,600 |
|
b. Accounts receivable |
|
|
|
| 560 |
|
c. Prepaid insurance | 840 |
|
|
| 560 |
|
d. Equipment | 168.280 |
|
|
| 168.280 |
|
e. Accumulated depreciation, equipment |
| $42.100 |
|
|
| $54.000 |
f. Income taxes payable |
|
|
|
|
| 6,580 |
g. Contributed capital |
| 112.000 |
|
|
| 112.000 |
h. Retained earnings, January 1,2012 |
| 19.600 |
|
|
| 19.600 |
i. Service revenue |
| 64.400 |
|
|
| 64.960 |
j. Salary expense | 56,380 |
|
|
| 56,380 |
|
k. Depreciation expense |
|
|
|
| 11,900 |
|
l. Insurance expense |
|
|
|
| 280 |
|
m. Income tax expense |
|
|
|
| 6,580 |
|
| $238.100 | $238.100 |
|
| $257,140 | $257,140 |
Required:
1. Compare the amounts in the columns before and after the adjusting entries to reconstruct the adjusting entries made in 2012. Provide an explanation of each.
2. Compute the amount of income assuming that it is based on the amounts (a) before adjusting entries and (b) after adjusting entries. Which income amount is correct? Explain why.
3. Compute earnings per share, assuming that 3,000 shares of stock are outstanding all year.
4. Compute the net profit margin. What does this suggest to you about the company?
5. Record the closing entry at December 31, 2012.
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