1 and 2
Prepare the T- account and enter the transaction into their respective accounts for calculating the ending balance.
1 and 2
Explanation of Solution
T-account:
T-account is the form of the ledger account, where the
The components of the T-account are as follows:
a) The title of the account
b) The left or debit side
c) The right or credit side
Prepare the T-accounts:
Cash account:
Cash account | |||
Beginning balance | $0 | (b) | $31,000 |
(a) | $60,000 | (g) | $1,240 |
(d) | $13,200 | (h) | $2,700 |
(e) | $2,400 | (j) | $6,000 |
(i) | $10,000 | (k) | $3,600 |
(m) | $500 | ||
Ending balance | $40,560 |
Accounts receivable account | |||
Beginning balance | $0 | (i) | $10,000 |
(h) | $35,260 | ||
Ending balance | $25,260 |
Supplies account:
Supplies account | |||
Beginning balance | $0 | ||
(a) | $12,000 | ||
(f) | $3,810 | ||
Ending balance | $15,810 |
Prepaid insurance account:
Prepaid insurance account | |||
Beginning balance | 0 | ||
(k) | $3,600 | ||
Ending balance | $3,600 |
Land account:
Land account | |||
Beginning balance | $0 | ||
(a) | $90,000 | ||
Ending balance | $90,000 |
Barns account:
Barns account | |||
Beginning balance | $0 | ||
(a) | $100,000 | ||
(b) | $62,000 | ||
Ending balance | $162,000 |
Accounts payable account:
Accounts payable account | |||
Beginning balance | 0 | ||
(f) | $3,810 | ||
(h) | $2,700 | (l) | $1,800 |
Ending balance | $2,910 |
Unearned revenue account:
Unearned revenue account | |||
Beginning balance | $0 | ||
(e) | $2,400 | ||
Ending balance | $2,400 |
Long-term note payable account:
Long-term note payable account | |||
Beginning balance | $0 | ||
(b) | $31,000 | ||
Ending balance | $31,000 |
Common stock account:
Common stock account | |||
Beginning balance | $0 | ||
(a) | $150 | ||
Ending balance | $150 |
Additional paid-in capital account:
Additional paid-in capital account | |||
Beginning balance | $0 | ||
(a) | $261,850 | ||
Ending balance | $261,850 |
Retained earnings account | |||
Beginning balance | $0 | ||
(m) | $500 | ||
Ending balance | $500 |
Animal care service revenue account:
Animal care service revenue account | |||
Beginning balance | 0 | ||
(c) | $35,260 | ||
Ending balance | $35,260 |
Rental revenue account:
Rental revenue account | |||
Beginning balance | 0 | ||
(d) | $13,200 | ||
Ending balance | $13,200 |
Utilities expense account:
Utilities expense account | |||
Beginning balance | 0 | ||
(g) | $1,240 | ||
(l) | $1,800 | ||
Ending balance | $3,040 |
Wages expense account:
Wages expense account | |||
Beginning balance | 0 | ||
(j) | $6,000 | ||
Ending balance | $6,000 |
Thus, the t-accounts are prepared and the ending balances are calculated.
3.
Prepare an income statement for 30th April 2017.
3.
Explanation of Solution
Income statement:
The financial statement which reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period is referred to as income statement.
Prepare an income statement:
Incorporation AS | ||
Income statement | ||
For the month ended 30th April 2017 | ||
Particulars | Amount ($) | Amount ($) |
Revenues: | ||
Animal care revenue | 35,260 | |
Rental revenue | 13,200 | |
Total revenues (A) | 48,460 | |
Expenses: | ||
Wages expense | 6,000 | |
Utilities expense | 3,040 | |
Total expenses (B) | 9,040 | |
Net Income | $39,420 |
Table (1)
Hence, the net income of Incorporation AS is $39,420.
4.
Write a memo to stockholders’ regarding the results of operations during the first month of the business.
4.
Explanation of Solution
MEMO
From
XYZ
Incorporation AS
To
Stockholders’ of Incorporation AS
Incorporation AS
30th April 2017
Sub: Results of operation during the first month of the business.
After the evaluation of effects of the transactions of Company KS, one can conclude that the company has earned a profit of $39,420. But, these are based upon unadjusted amounts. There are several expenses such as rent, supplies, depreciation, furniture and fixtures, interest on the borrowing and wages. The company does not seem to be profitable, as this situation is very common in small businesses during the inception of the operations. The company must focus on increasing revenues and while maintaining the expenses that should result in the upcoming years. The company should prepare budgeted
Regards,
XYZ
5.
Compute the net profit margin ratio for each year and explain the reason for promotion to chief financial officer.
5.
Explanation of Solution
Net profit margin ratio:
Net profit is the financial ratio that shows the relationship between the net profit and net sales (Operating revenue). Net profit is the difference between total operating revenue and total operating expenses. It can be calculated by dividing net profit and net sales revenue.
Compute the net profit margin ratio:
Net profit margin ratio for 2019:
Hence, the net profit margin ratio for the year 2019 is 0.111.
Net profit margin ratio for 2018:
Hence, the net profit margin ratio for the year 2018 is 0.0750.
Net profit margin ratio for 2017:
Hence, the net profit margin ratio for the year 2017 is (0.0278).
- By evaluating the net profit margin ratio, it is clear that the profit level of the Company has increased.
- This states that the company is very efficient in generating the revenue from the sales and controlling the expenses.
- Based on the above reason, the company can promote him as the chief financial officer.
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