Barbara Jones opened Barb\'s Book Business on February 1. You have been hired to
ID: 2335185 • Letter: B
Question
Barbara Jones opened Barb's Book Business on February 1. You have been hired to maintain the company's financial records. following transactions occurred in February, the first month of operations. a. Received shareholders' cash contributions on February 1 totaling $26,000 to form the corporation; issued 1,000 shares of co stock b. Paid $3,660 cash on February 2 for three months' rent for office space. TIP: For convenience, simply record the full amount of the payment as an asset (Prepaid Rent). At the end of the month, this will be adjusted to its proper balance. c. Purchased and received supplies on February 3 for $500 cash. d. Signed a promissory note on February 4, payable in two years; deposited $15,400 in the company's bank account e. On February 5, paid cash to buy equipment for $5,700 and land for $9,700 f Placed an advertisement in the local papet on February 6 for $795 cash. g. Recorded sales on February 7 totaling $2,700: $2,310 was in cash and the rest on accounts receivable h. Collected accounts receivable of $80 from customers on February 8. . On February 9, repaired one of the computers for $219 cash. TIP: Most repairs involve costs that do not provide additional future economic benefits. J Incurred and paid employee wages on February 28 of $705. Required 1. Prepare the journal entry for each of the above transactions. 2. Pos t the transaction activity from requirement 1 to the T-Accounts below. All accounts begin with zero balances because this is first month of operations 3. Prepare an unadjusted trial balance at the end of February. 4-a. Refer to the revenues and expenses shown on the unadjusted trial balance. Based on this information, calculate preliminary net income and net profit margin? 4-b. Determine whether the net profit margin is better or worse than the 18 percent earned by a close competitorExplanation / Answer
Barbara Jones
Journal Entries
Date
Account Titles and Explanation
Ref. No.
Debit
Credit
1-Feb
Cash
$26,000
Common Stock
$26,000
(To record issue of common shares)
2-Feb
Prepaid Rent
$3,660
Cash
$3,660
(To record payment of 3 months of rent in advance)
3-Feb
Supplies
$500
Cash
$500
(To record the purchase of supplies)
4-Feb
Cash
$15,400
Notes Payable (long-term)
$15,400
(To record note payable issued)
5-Feb
Equipment
$5,700
Land
$9,700
Cash
$15,400
(To record purchase of equipment and land)
6-Feb
Advertisement Expense
$795
Cash
$795
(To record advertisement expense)
7-Feb
Cash
$2,310
Accounts Receivable
$390
Sales Revenue
$2,700
(To record sales revenue)
8-Feb
Cash
$80
Accounts Receivable
$80
(To record cash collections from customers)
9-Feb
Repairs Expense
$219
Cash
$219
(To record payment for computer repair)
28-Feb
Wages Expense
$705
Cash
$705
(To record payment of wages)
T – Accounts:
T-Accounts
Cash
Supplies
Debit
Credit
Debit
Credit
Date
Description
Amount
Date
Description
Amount
Date
Description
Amount
Date
Description
Amount
1-Feb
Common Stock
$26,000
2-Feb
Prepaid Rent
$3,660
3-Feb
Cash
$500
4-Feb
Notes Payable
$15,400
3-Feb
Supplies
$500
28-Feb
Ending Balance
$500
7-Feb
Sales Revenue
$2,310
5-Feb
Equipment
$5,700
$500
$500
8-Feb
Accounts Receivable
$80
5-Feb
Land
$9,700
6-Feb
Advertisement Expense
$795
Notes Payable (Long-term)
9-Feb
Repairs Expense
$219
Debit
Credit
28-Feb
Wages Expense
$705
Date
Description
Amount
Date
Description
Amount
28-Feb
Ending Balance
$22,511
4-Feb
Cash
$15,400
$43,790
$43,790
28-Feb
Ending Balance
$15,400
$15,400
$15,400
Prepaid Rent
Debit
Credit
Equipment
Date
Description
Amount
Date
Description
Amount
Debit
Credit
2-Feb
Cash
$3,660
28-Feb
Rent Expense
$1,220
Date
Description
Amount
Date
Description
Amount
28-Feb
Ending bal.
$2,440
5-Feb
Cash
$5,700
$3,660
$3,660
28-Feb
Ending Bal
$5,700
$5,700
$5,700
Advertising Expense
Debit
Credit
Land
Date
Description
Amount
Date
Description
Amount
Debit
Credit
6-Feb
Cash
$795
Date
Description
Amount
Date
Description
Amount
28-Feb
Ending Balance
$795
5-Feb
Cash
$9,700
$795
$795
28-Feb
Ending bal.
$9,700
$9,700
$9,700
Accounts Receivable
Debit
Credit
Repairs Expense
Date
Description
Amount
Date
Description
Amount
Debit
Credit
7-Feb
Sales Revenue
$390
8-Feb
Cash
$80
Date
Description
Amount
Date
Description
Amount
28-Feb
Ending Balance
$310
9-Feb
Cash
$219
$390
$390
28-Feb
Ending Bal.
$219
$219
$219
Wages Expense
Debit
Credit
Rent Expense
Date
Description
Amount
Date
Description
Amount
Debit
Credit
28-Feb
Cash
$705
28-Feb
Ending Bal.
$705
Date
Description
Amount
Date
Description
Amount
$705
$705
28-Feb
Prepaid Rent
$1,220
28-Feb
Ending Bal.
$1,220
$1,220
$1,220
Common Stock
Debit
Credit
Date
Description
Amount
Date
Description
Amount
1-Feb
Cash
$26,000
28-Feb
Ending Balance
$26,000
$26,000
$26,000
Unadjusted trial balance:
Unadjusted Trial Balance
Account Titles
Debit
Credit
Cash
$22,511
Accounts Receivable
$310
Supplies
$500
Prepaid Rent
$3,660
Equipment
$5,700
Land
$9,700
Notes Payable (long-term)
$15,400
Sales Revenue
$2,700
Common Stock
$26,000
Advertising Expense
$795
Wages Expense
$705
Repairs Expense
$219
Total
$44,100
$44,100
Note: since the requirement is for unadjusted trial balance, adjustment for rent expense, depreciation and building as well as on equipment has not been taken into consideration.
4a.
Statement showing preliminary net income
Sales Revenue
$2,700
Expenses:
Advertising expense
$795
Repairs expense
$219
Wages Expense
$705
Total expenses
$1,719
Net income
$981
4b. analysis of net profit margin:
Profit margin = (net profit/sales) x 100
Net income = $981
Sales = $2,700
Profit margin = ($981/$2,700) x 100 = 36.33%
The net profit margin of Barbara Jones is better and higher when compared to the 18% margin earned by a close competitor.
Note:
The rent expense of $1,220 is not taken into consideration for calculation of net income, since the question specifically asks to consider the revenues and expenses provided in the unadjusted trial balance for computation of net income and net profit margin. The depreciation expense on building and equipment are also not taken into consideration.
Date
Account Titles and Explanation
Ref. No.
Debit
Credit
1-Feb
Cash
$26,000
Common Stock
$26,000
(To record issue of common shares)
2-Feb
Prepaid Rent
$3,660
Cash
$3,660
(To record payment of 3 months of rent in advance)
3-Feb
Supplies
$500
Cash
$500
(To record the purchase of supplies)
4-Feb
Cash
$15,400
Notes Payable (long-term)
$15,400
(To record note payable issued)
5-Feb
Equipment
$5,700
Land
$9,700
Cash
$15,400
(To record purchase of equipment and land)
6-Feb
Advertisement Expense
$795
Cash
$795
(To record advertisement expense)
7-Feb
Cash
$2,310
Accounts Receivable
$390
Sales Revenue
$2,700
(To record sales revenue)
8-Feb
Cash
$80
Accounts Receivable
$80
(To record cash collections from customers)
9-Feb
Repairs Expense
$219
Cash
$219
(To record payment for computer repair)
28-Feb
Wages Expense
$705
Cash
$705
(To record payment of wages)
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