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 $170,000 of common stock on April 1. b. Acquired a barn for $233,000. On April 2, the company paid half the amount in cash and signed a three-year note payable for the balance. c. Provided $18.500 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 $17,000 on April 4 for rent earned this month. e On April 5, received $3,650 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 $4,400. g. Paid $3,140 on accounts payable on April 7 for previous purchases. h. Received $1,340 from customers on April 8 on accounts receivable. 1. On April 9, prepaid a two-year insurance policy for $5,000 for coverage starting in May. J. On April 28, paid $1,700 in cash for water and utilities used this month. k. Paid $14,300 in wages on April 29 for work done this month. L. Received an electric utility bill on April 30 for $2,120 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

1.

Trn.	General Journal	Debit	Credit
a)	Cash	$170,000
	Common stock		$170,000
b)	Barn	$233,000
	Cash		$116,500.0
	Long term notes payable		$116,500.0
c)	Accounts Receivable	$18,500
	Service revenue		$18,500
d)	Cash	$17,000
	Rent revenue		$17,000
e)	Cash	$3,650
	Deferred revenue		$3,650
f)	Supplies	$4,400
	Accounts payable		$4,400
g)	Accounts payable	$3,140
	Cash		$3,140
h)	Cash	$1,340
	Accounts Receivable		$1,340
i)	Prepaid Insurance	$5,000
	Cash		$5,000
j)	Utilities Expense	$1,700
	Cash		$1,700
k)	Wages Expense	$14,300
	Cash		$14,300
i)	Utilities Expense	$2,120
	Accounts payable		$2,120

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2.

Common stock a) $170.000 a) d) e) h) Cash $170,000 b) $17.000 g) $3,650 1) $1,340 k) $116,500 $3,140 $5,000 $1,700 $14,300 End. Bal. $170,000 Long term notes payable b) $116,500 End. Bal. $51,350 End. Bal. $116,500 Accounts Receivable $18,500 h) Barn $233,000 c) $1,340 b) End. Bal. $17,160 End. Bal. $233,000

Supplies $4.400 Service revenue c) f) $18.500 End. Bal. $4.400 End. Bal. $18,500 Prepaid Insurance $5,000 Deferred revenue e) 1) $3,650 End. Bal. $5,000 End Bal. $3,650 1 1) End. Bal. Utilities Expense $1,700 $2,120 $3.820 Accounts payable $3,140 ) 1) End. Bal. $4,400 $2,120 $3,380 Wages Expense $14,300 Rent revenue d) k) $17,000 End. Bal. $14,300 End. Bal. $17.000

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3.

Unadjusted Trial Balance Debit Credit Cash $51,350 Accounts receivable $17,160 Prepaid insurance $5,000 Supplies $4,400 Barn $233,000 Accounts payable $3,380 Deferred revenue $3,650 Long term notes payable $116,500 Common stock $170.000 Service revenue $18,500 Rent revenue $17.000 Wages Expense $14,300 Utilities Expense $3,820 $329,030 $329,030

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4-a

Income statement
Service revenue		$18,500
Rent revenue		$17,000
Less: Expenses
Wages Expense	$14,300
Utilities Expense	$3,820	$18,120
Net Income		$17,380

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Net profit margin = Net profit / Net revenue

= $17380 / $35500

= 48.95%

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4-b

Better than competitor

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