Question

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An analysis of transactions made during July by NepCo, an Internet service provider, during its first month of operations is shown below. Increases and decreases affecting revenues and expenses are explained.

	Assets				=	Liabilities	+	Stockholders' Equity
	Cash	Accounts Receivable	Supplies	Equipment		Accounts Payable		Common Stock	Retained Earnings
(a)	+15,000							+15,000
(b)						+1,155			–1,155	Utilities expense
(c)		+6,950							+6,950	Service revenue
(d)	–6,600			+12,400		+5,800
(e)	+1,120								+1,120	Service revenue
(f)			+615			+615
(g)	–4,350					–4,350
(h)	–2,520								–2,520	Wage expense
(i)	–1,110								–1,110	Rent expense
(j)	+2,085	–2,085
	3,625	4,865	615	12,400		3,220		15,000	3,285

Required:

2-a.	Prepare an income statement as of July 31.

2-b.	Prepare a statement of retained earnings for July, 31.

2-c.	Prepare a classified balance sheet as of July 31, 2013.

3-a.	Calculate the net profit margin, expressed as a percent.(Round your answer to 1 decimal place.)

Answer 1

2-a) NepCo   

Income Statement

As of July 31   (Amounts in $)

Revenues
Service Revenue (6,950+1,120)	8,070
Total Revenues (A)		8,070
Expenses
Utilities Expense	1,155
Wage Expense	2,520
Rent Expense	1,110
Total Expenses (B)		4,785
Net Income (A-B)		3,285

2-b)   Statement of Retained Earnings for July 31 (Amounts in $)

Beginning Balance, July 1	0
Add: Net Income for the month of July	3,285
Less: Cash Dividends Paid	(0)
Ending Balance, July 31	3,285

2-c) Balance Sheet of Nepco as of July 31 (Amounts in $)

Assets
Current Assets
Cash	3,625
Accounts Receivable	4,865
Supplies	615
Total Current Assets		9,105
Equipment		12,400
Total Assets		21,505
Liabilities and Stockholders Equity
Current Liabilities
Accounts Payable		3,220
Stockholders Equity
Common Stock		15,000
Retained Earnings		3,285
Total liabilities and Stockholders Equity		21,505

3-a) Net Profit Margin = (Net Income/Service Revenue)*100

= ($3,285/8,070)*100 = 40.7%