Chapter 3P4 from Financial accounting Libby 8th edition P3-4 Analyzing the Effec

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Chapter 3P4 from Financial accounting Libby 8th edition

P3-4 Analyzing the Effects of Transactions Using T-Accounts, Preparing an Income Statement, and Evaluating the Net Profit Margin Ratio as a Manager LO3-4, 3-5, 3-6 Kaylee James, a connoisseur of fine chocolate, opened Kaylee’s Sweets in Collegetown on February 1, 2014. The shop specializes in a selection of gourmet chocolate candies and a line of gourmet ice cream. You have been hired as manager. Your duties include maintaining the store’s financial records. The following transactions occurred in February 2014, the first month of operations. a. Received four shareholders’ contributions totaling $30,200 cash to form the corporation; issued 400 shares of $.10 par value common stock. b. Paid three months' rent for the store at $1,750 per month (recorded as prepaid expenses). c. Purchased and received candy for $6,000 on account, due in 60 days. d. Purchased supplies for $1,560 cash. e. Negotiated and signed a two-year $11,000 loan at the bank. f. Used the money from (e) to purchase a computer for $2,750 (for recordkeeping and inventory tracking); used the balance for furniture and fixtures for the store. g. Placed a grand opening advertisement in the local paper for $400 cash; the ad ran in the current month. h. Made sales on Valentine's Day totaling $3,500; $2,675 was in cash and the rest on accounts receivable. The cost of the candy sold was $1,600. i. Made a $550 payment on accounts payable. j. Incurred and paid employee wages of $1,300. k. Collected accounts receivable of $600 from customers. l. Made a repair to one of the display cases for $400 cash. m. Made cash sales of $1,200 during the rest of the month. The cost of the candy sold was $600. Required: 1 & 2. Record in the T-accounts the effects of each transaction for Kaylee’s Sweets in February, referencing each transaction in the accounts with the transaction letter. Show the ending balances in the T-accounts. An example amount has been posted to the Cash T-Account from transaction (l). Total cost and expenses                    - Required: 5 After three years in business, you are being evaluated for a promotion. One measure is how effectively you managed the sales and expenses of the business.     The following data are available: 2016*        2015         2014   Total assets $     88,000 $            58,500 $            52,500   Total liabilities         49,500                22,000                 18,500   Total stockholders’ equity         38,500                36,500                 34,000   Net sale revenue         93,500                82,500                 55,000   Net income         22,000                11,000                   4,400 * At the end of 2016, Kaylee decided to open a second store, requiring loans and inventory purchases prior to the store’s opening in early 2017. 5-a. Calculate the net profit margin ratio for each year. (Round your answers to 1 decimal place.) Net Profit Margin Ratio 2016 % 2015 % 2014 % 5-b. Do you think you should be promoted?

Explanation / Answer

All T - Accounts with the closing balances :

Common Stock Debit Amounts $ Credit Amounts $ cash $40 Paid in Capital in excess of Par-common Stock cash $30160 Prepaid Rent Cash $1750 Accounts Payable $550 $6000 Closing Balance $5450 Cash Account 30200 1750 11000 1560 2675 400 600 2750 1200 8250 550 1300 400 Closing Balance 28715 Computer $2750 Furniture and Fixtures $8250 Inventory Accounts Payable $6000 COGS $1600 COGS $600 Closing balance $3800 Supplies $1560 Loan account $11000 Advertisement Expense $400 Sales Closing Balance $4700 3500 1200 Accounts Receivable $825 $600 Closing balance $225 COGS 1600 Closing Balance $2200 600 Wages expenses $1300 Repair Expenses $400

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