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 $230,000 of common stock on April 1. b. Acquired a barn for $180,000. On April 2, the company paid half the amount in cash and signed a three-year note payable for the balance. c. Provided $18,000 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 $14,000 on April 4 for rent earned this month. e. On April 5, received $3,350 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 $3,800. g. Paid $2,600 on accounts payable on April 7 for previous purchases. h. Received $2,040 from customers on April 8 on accounts receivable. i. On April 9, prepaid a two-year insurance policy for $4,800 for coverage starting in May. j. On April 28, paid $1,140 in cash for water and utilities used this month. k. Paid $14,800 in wages on April 29 for work done this month. 1. Received an electric utility bill on April 30 for $1,560 for usage in April; the bill will be paid next month. Required: 1. Prepare the journal entry for each of the above transactions, 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. Prepare an unadjusted trial balance as of April 30. 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. 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 $ 230,000 $ 230,000 b $ 180,000 Buildings Cash Notes Payable (long-term) $ 90,000 $ 90,000 C $ 18,000 Accounts Receivable Service Revenue $ 18,000 d $ 14,000 Cash Rent Revenue $ 14,000 e $ 3,350 Cash Deferred Revenue $ 3,350 $ 3,800 f Supplies Accounts Payable $ 3,800 g $ 2,600 Accounts Payable Cash $ 2,600 h $ 2,040 Cash Accounts Receivable $ 2,040 i $ 4,800 Prepaid Insurance Cash $ 4,800 j $ 1,140 Utilities expense Cash $ 1,140 k $ 14,800 Salaries and Wages expense Cash $ 14,800 $ 1,560 | Utilities expense Accounts Payable $ 1,560

Credit Date Credit Date Credit Date Credit Spicewood Stables, Inc. T Accounts Date Debit Date Cash $ 230,000 lb $ 14,000 g $ 3,350 $ 2,040 Debit Date Accounts Receivable $ 18,000 h Debit Date Supplies $ 3,800 Debit Date Prepaid Insurance $ 4,800 C $ 2,040 f $ 90,000 $ 2,600 $ 4,800 $ 1,140 $ 14,800 Bal. Bal. Bal. Bal. $ 136,050 Buildings $ 180,000 $ 15,960 Accounts Payable $ 2,600 f $ 3,800 Deferred Revenue $ 4,800 Notes Payable (long-term) $ 90,000 b $ 3,350 $ 3,800 $ 1,560 Bal. $ 2,760 Bal. $ 3,350 $ 90,000 $ 180,000 Common Stock Bal. Service Revenue Rent Revenue $ 230,000 $ 18,000 $ 14,000 $ 230,000 Bal. Bal. $ 14,000 Bal. Utilities expense $ 1,140 $ 1,560 $ 18,000 Salaries and Wages expense $ 14,800 Bal. $ 2,700 $ 14,800

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 136,050 15,960 3,800 4,800 180,000 2,760 3,350 90,000 230,000 18,000 14,000 2,700 14,800 358,110 358,110

18,000 14,000 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 32,000 2,700 14,800 17,500 14,500 Net profit margin Net Income/Sales =14,500/32,000 45.3% Net profit margin Net profit margin is BETTER than the 30.0 percent earned by a close competitor