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Brothers Steve and Herman Hargenrater began operations of their tool and die shop (H & H Tool, Inc.) on January 1, 2010. The annual reporting period ends December 31. The trial balance on January 1, 2011, follows:
Account Titles Debit Credit
Cash $ 4,000
Accounts receivable 7,000
Accumulated depreciation (on equipment) $ 8,000
Other assets (not detailed to simplify) 5,000
Income taxes payable
Long-term notes payable 7,000
Contributed capital (85,000 shares) 85,000
Retained earnings 10,000
Income tax expense
Remaining expenses (not detailed to simplify)
Totals $110,000 $110,000
Transactions during 2011 follow:
a.Borrowed $12,000 cash on a five-year, 10 percent note payable, dated march 1, 2011.
b.Purchased land for a future building site; paid cash, $12,000.
c.Earned revenues for 2011, $208,000, including $52,000 on credit and the rest in cash.
d.Sold 4,000 additional shares of capital stock for cash at $1 market value per share on January 1, 2011.
Data for adjusting entries
Supplies counted on December 31, 2011, $18,000.
7. Compute the following ratios for 2011 and explain what the results suggest about the company:
a. Financial leverage
b. Total asset turnover
c. Net profit margin