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E3-18 (Algo) Analyzing the Effects of Transactions Using T-Accounts and Interpreting the Net Profit Margin Ratio as a Financial Analyst LO3-4, 3-6

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Massa Company, which has been operating for three years, provides marketing consulting services worldwide for dot-com companies. You are a financial analyst assigned to report on the Massa management team’s effectiveness at managing its assets efficiently. At the start of 2019 (its fourth year), Massa's T-account balances were as follows. Dollars are in thousands.

Transactions for 2019:

1. Provided $60,000 in services to clients who paid $49,400 in cash and owed the rest on account.
2. Received $6,100 cash from clients on account.
3. Received $510 in cash as interest revenue on investments.
4. Paid $34,100 in wages, $12,800 in travel, $6,900 in rent, and $800 on accounts payable.
5. Received $1,600 in cash from clients in advance of services Massa will provide next year.
6. Received a utility bill for $690 for 2019 services.
7. Declared and immediately paid $350 in dividends to stockholders.

Assets

Cash
3,700

Accounts Receivable
8,800

Long-Term Investments
6,800

Liabilities

Accounts Payable
	1,600

Unearned Revenue
	5,100

Long-Term Notes Payable
	1,500

Stockholders’ Equity

Common Stock ($0.10 par value)
	690

Additional Paid-in Capital
	3,910

Retained Earnings
	6,500

Revenues

Consulting Fee Revenue

Interest Revenue

Expenses

Wages Expense

Travel Expense

Utilities Expense

Rent Expense

E3-18 Part 2

2. Enter the 2019 transactions in the T-accounts: (Enter your answer in thousands, not in dollars.)

Answer 1

Solution

Massa Company

T – Accounts

Assets
Cash
Description	Amount	Description	Amount
Beg. Balance	3,700	wages Expense	34,100
Service Revenue	49,400	Travel Expense	12,800
Accounts Receivable	6,100	Rent Expense	6,900
Interest Revenue	510	Accounts Payable	800
Unearned Revenue	1,600	Dividends	350
Balance	6,360
Accounts Receivable
Description	Amount	Description	Amount
Beg. Balance	8,800	Cash	6,100
Consulting Service Revenue	10,600
Balance	13,300
Long-Term Investments
Description	Amount	Description	Amount
Beg. Balance	6,800
Balance	6,800

Liabilities
Accounts Payable
Description	Amount	Description	Amount
Cash	$800	Beg. Balance	1,600
		Balance	800
Unearned Revenue
Description	Amount	Description	Amount
		Beg. Balance	5,100
		Cash	1,600
		Balance	6,700
Long-Term Notes Payable
Description	Amount	Description	Amount
Cash	$800	Beg. Balance	1,500
		Balance	1,500

Stockholders' Equity
Common Stock ($0.10 par value)
Description	Amount	Description	Amount
Cash	800	Beg. Balance	690
		Balance	690
Additional Paid-in Capital
Description	Amount	Description	Amount
		Beg. Balance	3,910
		Balance	3,910
Retained Earnings
Description	Amount	Description	Amount
Dividends	350	Beg. Balance	6,500
		Net Income	6,020
		Balance	12,170

Revenues
Consulting Fee Revenue
Description	Amount	Description	Amount
		Cash	49,400
		Accounts Receivable	10,600
		Balance	60,000
Interest Revenue
Description	Amount	Description	Amount
		Cash	510
		Balance	510

Expenses
Wages Expense
Description	Amount	Description	Amount
Cash	34,100
Balance	34,100
Travel Expense
Description	Amount	Description	Amount
Cash	12,800
Balance	12,800
Rent Expense
Description	Amount	Description	Amount
Cash	6,900
Balance	6,900
Utilities Expense
Description	Amount	Description	Amount
Utilities Payable	690
Balance	690

Computation of net income –

Revenues -
Consulting Fee Revenue	60,000
Interest Revenue	510
Total		60,510
Expenses -
Wages Expense	34,100
Travel Expense	12,800
Utilities Expense	690
Rent Expense	6,900
Total expenses		54,490
Net Income		6,020