E3-12 Recording Journal Entries and Determining Net Income and Net Profit Margin
ID: 2341105 • Letter: E
Question
E3-12 Recording Journal Entries and Determining Net Income and Net Profit Margin [LO 3-2, LO 3-3, LO 3-5] Rowland & Sons Air Transport Service, Inc., has been in operation for three years. The following transactions occurred in February Feb. 1 Paid $390 for rent of hangar space in February Feb. 4 Received customer payment of $710 to ship several items to Philadelphia next month. Feb. 7 Flew cargo from Denver to Dallas; the customer paid in full ($1,070 cash) Feb.10 Incurred and paid $2,000 in pilot wages for flying in February. Feb.14 Paid $168 for an advertisement run in the local paper on February 14 Feb.18 Flew cargo for two customers from Dallas to Albuquerque for $1,950, one customer paid S590 cash and the other asked to be billed $1,360 es Feb.25 Purchased on account $1,725 in supplies for future use on the planes Required 1. Prepare accrual basis journal entries for each transaction. 2. Calculate the company's preliminary net income. 3. Calculate the company's net profit margin expressed as a percent.Explanation / Answer
Rowland & sons Airport Transport Service Inc.
General entries
Transaction
General journal
Debit
Credit
Feb-01
Rent expense
390
Cash
390
(To record rent expense for hanger space.)
Feb-04
Cash
710
Unearned service revenue
710
(To record cash received in form of unearned service revenue.)
Feb-07
Cash
1070
Service revenue
1070
(To record service revenue.)
Feb-10
Wages expense
2000
Cash
2000
(To record wages expense for flying plane.)
Feb-14
Advertisement expense
168
Cash
168
(To record advertisement expense.)
Feb-18
Cash
590
Account receivable
1360
Service revenue
1950
(To record service revenue $1360 on account and $590 on cash.)
Feb-25
Supplies
1725
Account payable
1725
(To record purchase of supplies on credit.)
Service revenue (1070 +1950)
3020
Less: expense
Rent expense
390
Wages expense
2000
Advertisement expense
168
Total expense
2558
Preliminary net income
462
Preliminary net income
462
Service revenue
3020
Net profit margin (preliminary net income / service revenue)
15.3%
Rowland & sons Airport Transport Service Inc.
General entries
Transaction
General journal
Debit
Credit
Feb-01
Rent expense
390
Cash
390
(To record rent expense for hanger space.)
Feb-04
Cash
710
Unearned service revenue
710
(To record cash received in form of unearned service revenue.)
Feb-07
Cash
1070
Service revenue
1070
(To record service revenue.)
Feb-10
Wages expense
2000
Cash
2000
(To record wages expense for flying plane.)
Feb-14
Advertisement expense
168
Cash
168
(To record advertisement expense.)
Feb-18
Cash
590
Account receivable
1360
Service revenue
1950
(To record service revenue $1360 on account and $590 on cash.)
Feb-25
Supplies
1725
Account payable
1725
(To record purchase of supplies on credit.)
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