Chapter 3, Problem 18E

1.

To determine

Identify the amounts for assets, liabilities, and stockholders’ equity.

Explanation of Solution

Identify the amount:

Assets	=	Liabilities	+	Stockholders’ Equity
3,200		2,400		800
8,000		5,600		4,000
6,400		1,600		3,200
$17,600	=	$9,600	+	$8,000

Table (1)

Note:

• Assets include cash, accounts receivable, and long-term investments.
• Liabilities include accounts payable, unearned revenue, and long-term note payable.
• Stockholders’ equity includes common stock, additional paid-in capital, and retained earnings.

2.

To determine

Prepare the T- account and enter the amount for the given transaction in their respective accounts.

Explanation of Solution

Prepare the T-accounts:

Cash account:

Accounts receivable account:

Long-term investment account:

Accounts payable account:

Unearned revenue account:

Long-term note payable account:

Common stock account:

Additional paid-in capital account:

Retained earnings account:

Consulting fees revenue account:

Interest revenue account:

Wages expense account:

Travel expense account:

Utilities expense account:

Rent expense account:

Thus, the t-accounts are prepared and the ending balances are calculated.

3.

To determine

Ascertain the amount for the given equations at the end of the December.

Explanation of Solution

For the equation$\text{Revenues}-\text{Expenses}=\text{Net income}$:

$\begin{array}{c}\text{Revenue}-\text{Expenses}=\text{Net income}\\ \text{\$58,400}-\$56,400=\$2,000\end{array}$

For the equation$\text{Assets}=\text{Liabilities}+\text{Stockholders' equity}$:

$\begin{array}{c}\text{Assets}=\text{Liabilities}+\text{Stockholders' equity}\\ \$19,920=\$10,400+\$9,520\end{array}$

Working note (1):

Calculate the revenues:

$\begin{array}{c}\text{Revenues}=\text{Revenue from sales}+\text{Revenue from investments}\\ =\$58,000+\$400\\ =\$58,400\end{array}$

Working note (2):

Calculate the expenses:

$\begin{array}{c}\text{Expenses}=\left(\begin{array}{l}\text{Wages expenses}+\text{Utilities expenses}+\\ \text{Travel expenses}+\text{Rent expenes}\end{array}\right)\\ =\$36,000+\$800+12,000+\$7,600\\ =\$56,400\end{array}$

Calculate the net income:

Particulars	Amount ($)	Amount ($)
Revenues	(1) 58,400
Less: Expenses	(2) 56,400
Net income		$2,00

Table (2)

Calculate the amount for the accounting equation:

Assets	=	Liabilities	+	Stockholders’ Equity
$1,120		$1,600		$800
$12,400		$7,200		$4,000
$6,400		$1,600		$2,720
				$2,000
$19,920	=	$10,400	+	$9,250

Table (3)

4.

To determine

Calculate the net profit margin ratio for 2019.

Explanation of Solution

Net profit margin ratio can be calculated by using the following formula:

$\text{Net profit margin ratio}=\frac{\text{Net income}}{\text{Net sales revenues}}$

Calculate the net profit margin ratio for 2019:

$\begin{array}{c}\text{Net profit margin ratio}=\frac{\text{Net income}}{\text{Net sales revenue}}\\ =\frac{\$2,000}{\$58,000}\times 100\\ =3.\text{45\%}\end{array}$

Hence, the net profit margin ratio for the year 2019 is 3.45%.

• By computing the net profit margin ratio, Company KK net profit margin ratio is 3.45%. This indicates that there is an increase in the net profit margin ratio.
• Company KK has become effective in managing its sales and the expenses.