Question

P3-6 (Algo) Analyzing the Effects of Transactions Using T-Accounts, Preparing an Income Statement, and Evaluating the Net Profit Margin Ratio LO3-4, 3-5, 3-6

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Following are account balances (in millions of dollars) from a recent StateEx annual report, followed by several typical transactions. Assume that the following are account balances on May 31 (end of the prior fiscal year):

Account	Balance			Account	Balance
Property and equipment (net)	$	18,694		Receivables	$	2,749
Retained earnings		14,406		Other current assets		1,119
Accounts payable		1,737		Cash		1,364
Prepaid expenses		348		Spare parts, supplies, and fuel		878
Accrued expenses payable		2,550		Other noncurrent liabilities		4,010
Long-term notes payable		1,970		Other current liabilities		2,419
Other noncurrent assets		3,272		Additional Paid-in Capital		1,327
Common stock ($0.10 par value)		5

These accounts are not necessarily in good order and have normal debit or credit balances. Assume the following transactions (in millions, except for par value) occurred the next fiscal year beginning June 1 (the current year):

1. Provided delivery service to customers, who paid $13,390 in cash and owed $41,504 on account.
2. Purchased new equipment costing $3,914; signed a long-term note.
3. Paid $12,664 cash to rent equipment and aircraft, with $6,736 for rent this year and the rest for rent next year.
4. Spent $1,344 cash to repair facilities and equipment during the year.
5. Collected $38,685 from customers on account.
6. Repaid $390 on a long-term note (ignore interest).
7. Issued 260 million additional shares of $0.10 par value stock for $40 (that’s $40 million).
8. Paid employees $15,276 for work during the year.
9. Purchased spare parts, supplies, and fuel for the aircraft and equipment for $13,764 cash.
10. Used $7,650 in spare parts, supplies, and fuel for the aircraft and equipment during the year.
11. Paid $1,264 on accounts payable.
12. Ordered $136 in spare parts and supplies.

P3-6 Part 4

4. Compute the company's net profit margin ratio for the current year ended May 31. (Round your percentage answer to 1 decimal place (i.e., 32.1)).

Answer 1

Statement of income and Expenses Account

Paticulars	Amount	Particulars	Amount
Delivery Service	13390	Delivery Income	41504
Purchase equipment	3914	Collection	38685
Rent Equipment	12664	Repaid Long term	390
Air craft rent	6736
Repair charge	1344
Employee Charge	15276
Spare parts	13764
Fuel Charge	7650
Paid to payable	1264
Oerder pay	136
Net Profit	4441
	80579		80579

Balance Sheet

Liabilities	Amount	Assets	Amount
Stock share	1600	PPE	18694
Share	260	Other Non Current Assets	3272
Paid up capital	1327	Stock	5
Retain earnings	14406	Other Current Assets	1119
Account payable	1737	Cash	1364
Prepaid Exp	348	Spare parts	878
Accrued exp	2550	Receivable	2749
Long Term loan	1970	Misc Income	558
Net Profit	4441
	28639		28639

*******Note in the above Question for calculation of Net profit margin there is no Tax rate

Net Profit ratio=Net profit after Tax/ Sales (ie for sales i assume as Account payable)

Given Solution

4441/1737=2.55