PA3-3 Analyzing the Effects of Transactions using T-accounts, preparing an unadjusted trial balance, and determining net income and net profit margin

Spicewood Stables, Inc., was established in Dripping Springs, Texas, on April 1. The company provides stables, care for animals, and grounds for riding and showing horses. You have been hired as the new Assistant Controller. The following transactions for April are provided for your review.

1. Received contributions from investors and issued $200,000 of common stock on April 1.

2. Built a barn and other buildings for $142,000. On April 2, the company paid half the amount in cash and signed a three-year note payable for the balance.

3. Provided $16,000 in animal care services for customers on April 3, all on credit.

4. Rented stables to customers who cared for their own animals; received cash of $13,000 on April 4 for rent earned this month.

5. On April 5, received $1,500 cash from a customer to board her house in May, June, and July (record as Unearned Revenue).

6. Purchased hay and feed supplies on account on April 6 for $3,000.

7. Paid $1,700 on accounts payable on April 7 for previous purchases.

8. Received $1,000 from customers on April 8 on accounts receivable.

9. On April 9, prepaid a two-year insurance policy for $3,600 for coverage starting in May.

10. On April 28, paid $800 in cash for water and utilities used this month.

11. Paid $14,000 in wages on April 29 for work done this month.

12. Received an electric utility bill on April 30 for $1,200 for usage in April; the bill will be paid next month.

Required:

1. Record the effects of transactions (1) through (12) using journal entries.

2. If you are completing this requirement manually, set up appropriate t-accounts. All accounts begin with zero balances. Summarize the journal entries from requirement 1 in the t-accounts, referencing each transaction in the accounts with the transaction number. Show the unadjusted ending balances in the t-accounts.

3. Prepare an unadjusted trial balance as of April 30.

4. Refer to the revenues and expenses shown on the unadjusted trial balance. Based on this information, calculate preliminary net income and determine whether the net profit margin is better or worse than the 30.0 percent earned by a close competitor.