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 Kaylees 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 stores 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 Kaylees 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).

Cash

Accounts Receivable

Beg. bal.

Beg. bal.

400

(l)

End. bal.

End. bal.

Supplies

Inventory

Beg. bal.

Beg. bal.

End. bal.

End. bal.

Prepaid Expenses

Equipment

Beg. bal.

Beg. bal.

End. bal.

End. bal.

Furniture and Fixtures

Accounts Payable

Beg. bal.

Beg. bal.

End. bal.

End. bal.

Notes Payable

Common Stock

Beg. bal.

Beg. bal.

End. bal.

End. bal.

Additional Paid-in Capital

Sales Revenue

Beg. bal.

Beg. bal.

End. bal.

End. bal.

Cost of Goods Sold

Repair Expense

Beg. bal.

Beg. bal.

End. bal.

End. bal.

Advertising Expense

Wage Expense

Beg. bal.

Beg. bal.

End. bal.

End. bal.

Required:

3

Prepare an income statement at the end of the month ended February 28, 2014.

KAYLEES SWEETS

Income Statement (unadjusted)

For the Month Ended February 28, 2014

Revenues:

Expenses:

Total cost and expenses

0

Net income

$400

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 stores 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?