Question

Spicewood Stables, Inc., was established in Dripping Springs, Texas, on April 1. The company provides stables, care for animals, and grounds for riding and showing horses. You have been hired as the new assistant controller. The following transactions for April are provided for your review. a. Received contributions from investors and issued $210,000 of common stock on April 1. b. Acquired a barn for $140,000. On April 2, the company paid half the amount in cash and signed a three-year note payable for the balance. c. Provided $24,500 in animal care services for customers on April 3, all on credit. d. Rented stables to customers who cared for their own animals; received cash of $22,500 on April 4 for rent earned this month. e. On April 5, received $3,950 cash from a customer to board her horse in May, June, and July (record as Deferred Revenue). f. Purchased and received hay and feed supplies on account on April 6 for $3,100. g. Paid $3,500 on accounts payable on April 7 for previous purchases. h. Received $1,060 from customers on April 8 on accounts receivable. i. On April 9, prepaid a two-year insurance policy for $3,700 for coverage starting in May. j. On April 28, paid $1,490 in cash for water and utilities used this month. k. Paid $14,600 in wages on April 29 for work done this month. 1. Received an electric utility bill on April 30 for $1,360 for usage in April; the bill will be paid next month.

Answer 1

i. Unadjusted Trial Balance:

SPICEWOOD STABLES, INC.
Unadjusted Trial Balance
For the month ended April,30
	Debit	Credit
Cash	$144,220
Accounts receivable	$23,440
Supplies	$3,100
Prepaid insurance	$3,700
Buildings	$140,000
Accounts payable		$960
Deferred revenue		$3,950
Notes Payable (long-term)		$70,000
Common stock		$210,000
Service revenue		$24,500
Rent Revenue		$22,500
Utilities expense	$2,850
Salaries and Wages Expense	$14,600
Total	$331,910	$331,910

Calculations:

	Debit	Credit
Cash	210000-70000+22500+3950-3500+1060-3700-1490-14600
Accounts receivable	24500-1060
Supplies	$3,100
Prepaid insurance	$3,700
Buildings	$140,000
Accounts payable		3100-3500+1360
Deferred revenue		$3,950
Notes Payable (long-term)		$70,000
Common stock		$210,000
Service revenue		$24,500
Rent Revenue		$22,500
Utilities expense	1490+1360
Salaries and Wages Expense	$14,600

ii. Net income & Net income percentage:

Preliminary net income	$29,550
Net profit margin	62.9%

Calculations:

Income Statement
Revenues:
Service revenue		$24,500
Rent Revenue		$22,500
Total Revenues		$47,000
Less: Expenses:
Utilities expense	$2,850
Salaries and Wages Expense	$14,600
Total Expenses		$17,450
Preliminary net income		$29,550

Net profit margin = (29,550/47,000) x 100 = 62.9%

iii.Net profit margin is Better

Explanation: Company net profit margin is more than the close competitors. Hence, it is better.