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not be included on the statement. P3-4 LO3-4, 3-5, 3-6 Analyzing the Effects of Transactions Using T-Accounts, Preparing an Income Statement, and Evaluating the Net Profit Margin Ratio as a Manager (AP3-4) Kaylee James, a connoisseur of fine chocolate, opened Kaylee's Sweets in Collegetown on February 1. 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, the first month of operations. a. Received four shareholders' contributions totaling $30.200 cash to form the corporation: issued 400 shares of $0.10 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. . Used the money from @) to purchase a computer for $2,750 (for recordkeeping and inventory track ing): used the balance for furniture and fixtures for the store. 8. 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 receiv. able. 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. 2. 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. CHAPTER 3 Operating Decisions and the Accounting Syste Required: 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, referenc- ing 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 recogni tion and one for the expense. 3. Prepare an income statement at the end of the first month of operations ended February 28, 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 effec tively you managed the sales and expenses of the business. The following data are available: 2017 2018 2016 Total assets $88.000 $58,500 Total liabilities $52,500 49,500 22.000 18,500 Total stockholders' equity 38,500 36,500 34.000 Net sales revenue 93.500 82,500 55.000 Net income 22,000 11,000 4,400 At the end of 2018, Kaylee decided to open a second store, requiring loans and inventory purchases prior to the store's opening in early 2019. Compute the net profit margin ratio for each year and evaluate the results. Do you think you should be promoted? Why? Idende
