Barbara Jones opened Barb’s Book Business on February 1. You have been hired to maintain the company’s financial records. The following transactions occurred in February, the first month of operations.
1. Received shareholders’ cash contributions on February 1 totaling $ 16,000 to form the corporation; issued 1,000 shares of common stock.
2. Paid $ 2,400 cash on February 2 for three months’ rent for office space.
3. Purchased supplies on February 3 for $ 300 cash.
4. Signed a promissory note on February 4, payable in two years; deposited $ 10,000 in the company’s bank account.
5. On February 5, purchased equipment for $ 2,500 and land for $ 7,500.
6. Placed an advertisement in the local paper on February 6 for $ 425 cash.
7. Recorded sales on February 7 totaling $ 1,800; $ 1,525 was in cash and the rest on accounts receivable.
8. Collected accounts receivable of $ 50 from customers on February 8.
9. On February 9, repaired one of the computers for $ 120 cash.
10. Incurred and paid employee wages on February 28 of $ 420.
Required:
1. Record the effects of transactions (1) through (10) using journal entries.
2. If this requirement is being completed manually, set up appropriate T- accounts for Cash, Accounts Receivable, Supplies, Prepaid Rent, Land, Equipment, Notes Payable, Common Stock, Service Revenue, Advertising Expense, Salaries and Wages Expense, and Repairs and Maintenance Expense. All accounts begin with zero balances because this is the first month of operations. Summarize the journal entries from requirement 1, referencing each transaction in the accounts with the transaction number. Show the unadjusted ending balances in the T- accounts. If you are using the GL tool in Connect, your answers to requirement 1 will have been posted automatically to general ledger accounts that are similar in appearance to Exhibit 2.9.
3. Prepare an unadjusted trial balance at the end of February. If you are using the GL tool in Connect, this requirement is completed automatically using your previous answers.
4. Refer to the revenues and expenses shown on the unadjusted trial balance. Based on this information, calculate preliminary net income and net profit margin (expressed as a percent to one decimal place), and determine whether the net profit margin is better or worse than the 10.0 percent earned by a close competitor.