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.

1. Received contributions from investors and issued $300,000 of common stock on April 1.
2. Acquired a barn for $222,000. On April 2, the company paid half the amount in cash and signed a three-year note payable for the balance.
3. Provided $16,900 in animal care services for customers on April 3, all on credit.
4. Rented stables to customers who cared for their own animals; received cash of $19,000 on April 4 for rent earned this month.
5. On April 5, received $1,850 cash from a customer to board her horse in May, June, and July (record as Deferred Revenue).
6. Purchased and received hay and feed supplies on account on April 6 for $4,100.
7. Paid $2,640 on accounts payable on April 7 for previous purchases.
8. Received $1,300 from customers on April 8 on accounts receivable.
9. On April 9, prepaid a two-year insurance policy for $6,000 for coverage starting in May.
10. On April 28, paid $1,120 in cash for water and utilities used this month.
11. Paid $15,500 in wages on April 29 for work done this month.
12. Received an electric utility bill on April 30 for $2,800 for usage in April; the bill will be paid next month.

Required:

1. 1. Prepare the journal entry for each of the above transactions.

2. 2. Post the transaction activity from requirement 1 to the T-Accounts below. All accounts begin with zero balances because this is the first month of operations.

3. 3. Prepare an unadjusted trial balance as of April 30.

4. 4-a. Refer to the revenues and expenses shown on the unadjusted trial balance. Based on this information, calculate preliminary net income and net profit margin.

5. 4-b. Determine whether the net profit margin is better or worse than the 30.0 percent earned by a close competitor.

Answer 1

Spicewood Stables, Inc. Journal entries Date Account a Cash Common Stock Credit Debit $ 300,000 $ 300,000 b $ 222,000 Buildings Cash Notes Payable (long-term) $ 111,000 $ 111,000 C $ 16,900 Accounts Receivable Service Revenue $ 16,900 d $ 19,000 Cash Rent Revenue $ 19,000 e $ 1,850 Cash Deferred Revenue $ 1,850 $ 4,100 f Supplies Accounts Payable $ 4,100 g $ 2,640 Accounts Payable Cash $ 2,640 h $ 1,300 Cash Accounts Receivable $ 1,300 i $ 6,000 Prepaid Insurance Cash $ 6,000 j $ 1,120 Utilities expense Cash $ 1,120 k $ 15,500 Salaries and Wages expense Cash $ 15,500 $ 2,800 | Utilities expense Accounts Payable $ 2,800

Credit Date Credit Date Credit Spicewood Stables, Inc. T Accounts Date Debit Date Cash $ 300,000 lb $ 19,000 g $ 1,850 $ 1,300 Debit Date Credit Date Accounts Receivable $ 16,900 h $ 1,300f Debit Date Supplies $ 4,100 Debit Date Prepaid Insurance $ 6,000 C $ 111,000 $ 2,640 $ 6,000 $ 1,120 $ 15,500 Bal. Bal. Bal. Bal. $ 185,890 Buildings $ 222,000 $ 15,600 Accounts Payable $ 2,640 f $ 4,100 Deferred Revenue $ 6,000 Notes Payable (long-term) b $ 1,850 $ 4,100 $ 2,800 Bal. Bal. $ 4,260 Bal. $ 1,850 $ 222,000 Common Stock Service Revenue Rent Revenue $300,000 $ 16,900 $ 19,000 $300,000 Bal. $ 19,000 Bal. Utilities expense $ 1,120 $ 2,800 Bal. $ 16,900 Salaries and Wages expense $ 15,500 Bal. $ 3,920 $ 15,500

Spicewood Stables, Inc. Account Names Cash Accounts Receivable Supplies Prepaid Insurance Buildings Accounts Payable Deferred Revenue Notes Payable (long-term) Common Stock Service Revenue Rent Revenue Utilities expense Salaries and Wages expense Totals Unadjusted TB Debit Credit 185,890 15,600 4,100 6,000 222,000 4,260 1,850 111,000 300,000 16,900 19,000 3,920 15,500 453,010 453,010

16,900 19,000 Spicewood Stables, Inc. Income Statement For the Month Ended April 30 Revenues Service Revenue Rent Revenue Total Revenues Expenses Utilities expense Salaries and Wages expense Total Expenses Preliminary Net Income 35,900 3,920 15,500 19,420 16,480 Net profit margin Net Income/Sales =16,480/35,900 45.9% Net profit margin Net profit margin is BETTER than the 30.0 percent earned by a close competitor