Analyzing the Effects of Transactions Using T-Accounts, Preparing an Income Statement, and Evaluating the Net Profit...

Transcribed Image Text:

Analyzing the Effects of Transactions Using T-Accounts, Preparing an Income Statement, and Evaluating the Net Profit Margin Ratio as a Manager 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, receiving cash at the time. 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 S3,500; $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 S600 from customers. I. 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 S600. Required: 1. Set up appropriate T-accounts for Cash, Accounts Receivable, Supplies, Inventory, Prepaid Expenses, Equipment, Furniture and Fixtures, Accounts Payable, Notes Payable, Common Stock, Additional Paid-in Capital, Sales Revenue, Cost of Goods Sold (expense), Advertising Expense, Wage Expense, and Repair Expense. All accounts begin with zero balances. 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. Note that transactions (h) and ( m ) require two types of entries, one for revenue recognition and one for the expense. 3. Prepare an income statement at the end of the month ended February 28, 2014. 4. Write a short memo to Kaylee offering your opinion on the results of operations during the first month of business. 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 Total liabilities Total stockholders' equity $88,000 49,500 38,500 93,500 22,000 $58,500 22,000 36,500 82,500 11,000 $52,500 18,500 34,000 55,000 4,400 Net sales revenue Net income *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. Compute the net profit margin ratio for each year and evaluate the results. Do you think you should be promoted? Why? Analyzing the Effects of Transactions Using T-Accounts, Preparing an Income Statement, and Evaluating the Net Profit Margin Ratio as a Manager 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, receiving cash at the time. 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 S3,500; $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 S600 from customers. I. 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 S600. Required: 1. Set up appropriate T-accounts for Cash, Accounts Receivable, Supplies, Inventory, Prepaid Expenses, Equipment, Furniture and Fixtures, Accounts Payable, Notes Payable, Common Stock, Additional Paid-in Capital, Sales Revenue, Cost of Goods Sold (expense), Advertising Expense, Wage Expense, and Repair Expense. All accounts begin with zero balances. 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. Note that transactions (h) and ( m ) require two types of entries, one for revenue recognition and one for the expense. 3. Prepare an income statement at the end of the month ended February 28, 2014. 4. Write a short memo to Kaylee offering your opinion on the results of operations during the first month of business. 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 Total liabilities Total stockholders' equity $88,000 49,500 38,500 93,500 22,000 $58,500 22,000 36,500 82,500 11,000 $52,500 18,500 34,000 55,000 4,400 Net sales revenue Net income *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. Compute the net profit margin ratio for each year and evaluate the results. Do you think you should be promoted? Why?