Question

6 PA3-3 Analyzing the Effects of Transactions Using T-Accounts, Preparing an Unadjusted Trial Balance, and Determining Net Income and Net Profit Margin (LO 3-1, LO 3-2, LO 3-3, LO 3-4, LO 3-5) 0 onts 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. eBook a. Received contributions from investors and issued $290,000 of common stock on April 1. b. Acquired a barn for $182,000. On April 2, the company paid half the amount in cash and signed a three-year note payable for the balance. c. Provided $19,800 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 $18,800 on April 4 for rent earned this month. e. On April 5, received $2,600 cash from a customer to board her horse in May, June, and July (record as Deferred Revenue). Purchased and received hay and feed supplies on account on April 6 for $4,800. g. Paid $3,540 on accounts payable on April 7 for previous purchases. h. Received $2,520 from customers on April 8 on accounts receivable. 1 On April 9, prepaid a two-year Insurance policy for $4,000 for coverage starting in May. J. On April 28, paid $1,250 in cash for water and utilities used this month. k Paid $15,400 in wages on April 29 for work done this month. Received an electric utility bill on April 30 for $3,140 for usage in April; the bill will be paid next month. References Required: 1. Prepare the journal entry for each of the above transactions. 2. Post the transaction activity from requirement 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

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Answer 1 Journal entries in books of Spicewoods Stables Inc Date Account Title Credit a. Cash $ 290,000 Common stock $ 290,000 Debit Credit $ 290,000 a. a. Answer 2 Ledger accounts in books of Spicewoods Stables Inc Cash Common Stock Date Debit Date Credit Date Debit Date $ 290,000 b. $ 91,000 d. $ 18,800 g. $ 3,540 $ 2,600 i. $ 4,000 h. $ 2,520 j. $ 1,250 Balance $ 290,000 k. $ 15,400 Balance $ 198,730 $ 313,920 $ 313,920 $ 290,000 b. $ 182,000 e. Building Cash Notes Payable $ 91,000 $ 91,000 C. $ 19,800 $ 290,000 Accounts Receivable Service Revenue $ 19,800 d. $ 18,800 Date Cash Rent Revenue Notes Payable Date Debit Date Credit b. $ 91,000 Balance $ 91,000 $ 18,800 Building Debit Date Credit $ 91,000 $ 91,000 Balance $ 182,000 b. b. e. $ 2,600 Cash Deferred Revenue $ 2,600 $ 182,000 $ 182,000 $ 91,000 $ 91,000 f. $ 4,800 Supplies Accounts Payable $ 4,800 Date Accounts Receivable Debit Date Credit $ 19,800 h. $ 2,520 Date Service Revenue Debit Date Credit C. $ 19,800 g. $ 3,540 C. Accounts Payable Cash $ 3,540 Balance $ 17,280 Balance $ 19,800 h. $ 2,520 Cash Accounts Receivable $ 2,520 $ 19,800 $ 19,800 $ 19,800 $ 19,800 i. $ Prepaid Insurance Cash 4,000 Rent Revenue Debit Date $ 4,000 Date Date Credit $ 18,800 Deferred Revenue Debit Date Credit e. $ 2,600 d. j. Utilities Expenses Cash $ 1,250 $ 1,250 Balance $ 18,800 Balance $ 2,600 k. $ 15,400 $ 18,800 $ 18,800 $ 2,600 $ 2,600 Salaries and wages expenses Cash $ 15,400 1. $ 3,140 Date Utilities Expenses Accounts Payable Supplies Debit Date $ 4,800 Credit $ 3,140 f. Accounts Payable Date Debit Date Credit $ 3,540 f. $ 4,800 1. $ 3,140 Balance $ 4,400 Balance $ 4,800 $ 4,800 $ 4,800 $ 7,940 $ 7,940 Date Prepaid Insurance Debit Date Credit $ 4,000 Date i. j. 1. Utilities Expenses Debit Date Credit $ 1,250 $ 3,140 Balance $ 4,390 Balance $ 4,000 Answer 3 Unadjusted Trial Balance as of April 30 Account Name Debit Credit Cash $ 198,730 Common stock $ 290,000 Building $ 182,000 Notes Payable $ 91,000 Accounts Receivable $ 17,280 Service Revenue $ 19,800 Rent Revenue $ 18,800 Deferred Revenue $ 2,600 Supplies $ 4,800 Accounts Payable $ 4,400 Prepaid Insurance $ 4,000 Utilities Expenses $ 4,390 Salaries and wages expenses $ 15,400 $426,600 $426,600 $ 4,000 $ 4,000 $ 4,390 $ 4,390 Salaries and wages expenses Date Debit Date Credit k. $ 15,400 Balance $ 15,400 $ 15,400 $ 15,400 Answer 4a Spicewoods Stable Inc Income Statement for the month ended April 30 Revenues Service Revenue $ 19,800 Rent Revenue $ 18,800 Total Revenue $ 38,600 $ 4,390 $ 15,400 Expenses Utilities Expenses Salaries and wages expenses Total Expenses Preliminary Net Icnome Net profit Margin $ 19,790 $ 18,810 48.73% Net Profit Margin = Net Income / Sales Answer 4b Net Profit margin of Spicewoods Stable Inc is 48.73% which is higher than what is earned by competitor i.e 30% So, Net profit margin of Spicewoods Stable Inc. is BETTER than competitor.