Chapter 3, Problem 1COP

1.

To determine

Analyze the effects of the January transaction on the accounting equation using a table.

Explanation of Solution

Accounting Equation: The accounting equation implies the relationship between the assets, liabilities, and the stockholders equity. The balance of both the assets and the liabilities, stockholders equity must be equally balanced. The accounting equation is as follows:

$\text{Assets = Liabilities + Stockholders Equity}$

The effects of the accounting equation for the September events using a table are indicated as follows:

Table (1)

Note:

SE refers to Stockholder’s equity.

E refers to Expenses.

R refers to Revenues.

2.

To determine

Prepare journal entries for the transaction occurred in January.

Explanation of Solution

Journal: Journal is the book of original entry. Journal consists of the day today financial transactions in a chronological order. The journal has two aspects; they are debit aspect and the credit aspect.

Journal entries for September events are prepared as follows:

Date		Account Title and Explanation	Debit ($)	Credit ($)
	1.	Cash  (A+)	50,000
		Accounts Receivable (A–)		50,000
		(To record the cash receipt from customer for the service rendered already)
	2.	Equipment  (A+)	33,500
		Cash  (A–)		10,000
		Notes Payable (L+)		23,500
		(To record the purchase of equipment partly for cash and partly by signing a note)
	3.	Advertising Expense	10,000
		Cash  (A–)		10,000
		(To record the payment made for advertising expenses)
	4.	Supplies  (A+)	3,000
		Accounts Payable (L+)		3,000
		(To record the supplies purchased on accounts)
	5.	Cash  (A+)	170,000
		Service Revenue  (R+, SE+)		170,000
		(To record the cash receipt for the service  provide)
	6.	Accounts Payable (L–)	3,000
		Cash (A–)		3,000
		(To record the payment made for the supplies purchased on account)
	7.	Cash  (A+)	112,500
		Accounts Receivable (A+)	112,500
		Service Revenue  (R+, SE+)		225,000
		(To record the sales made partly for cash and partly on account )
	8.	Salaries and Wages Expense (E+, SE–)	378,000
		Cash  (A–)		378,000
		(To record the payment of wages expenses to employees)
	9.	Utilities Expense (E+, SE–)	5.350
		Accounts Payable  (L+)		5.350
		(To record the utilities expenses incurred which are to be paid later)

Table (2)

3.

To determine

Create T accounts for the balance sheet accounts and post the journal entries to the T-account, also show the unadjusted ending balance in the T- accounts.

Explanation of Solution

T-account: An account is referred to as a T-account, because the alignment of the components of the account resembles the capital letter ‘T’. An account consists of the three main components which are as follows:

• The title of the account
• The left or debit side
• The right or credit side

The posting of the journal entries to the T accounts are as follows:

4.

To determine

Prepare an unadjusted trial balance of corporation V for the month ended January 31, 2018.

Explanation of Solution

Unadjusted trial balance: Unadjusted trial balance is that statement which contains complete list of accounts with their unadjusted balances. This statement is prepared at the end of every financial period.

An unadjusted trial balance of corporation V for the month ended January 31, 2018 is prepared as follows:

Corporation V
Unadjusted Trial Balance
At January 31, 2018
Particulars	Debit ($)	Credit ($)
Cash	$1,431,500
Accounts Receivable	212,500
Supplies	17,700
Equipment	908,000
Building	422,000
Land	1,200,000
Accounts Payable		$113,350
Deferred Revenue		73,500
Notes Payable		83,500
Common Stock		2,500,000
Retained Earnings		1,419,700
Service Revenue		395,000
Salaries and Wages Expense	378,000
Advertising Expense	10,000
Utilities Expense	5,350
Total	$4,585,050	$4,585,050

Table (3)

Conclusion

The debit column and credit column of the unadjusted trial balance are agreed, both having balance of $4,585,050.

5.

To determine

Prepare an income statement of corporation V for the year ended January 31, 2018.

Explanation of Solution

Income statement: The financial statement which reports revenues and expenses from business operations and the result of those operations as net income or net loss for a particular time period is referred to as income statement.

An income statement of corporation V for the year ended December 31is prepared as follows:

Corporation V Income Statement For the year Ended January 31, 2018
Particulars	Amount ($)	Amount ($)
Revenues:
Service Revenue	$395,000
Total Revenues		395,000
Less: Expenses:
Salaries and Wages Expense	378,000
Advertising Expense	10,000
Utilities Expense	5,350
Total Expenses		393,350
Net Income		$1,650

Table (4)

6.

To determine

Prepare the statement of retained earnings of Corporation V for the year ended January 31, 2018.

Explanation of Solution

Statement of Retained Earnings: Statement of retained earnings shows, the changes in the retained earnings, and the income left in the company after payment of the dividends, for the accounting period.

The statement of retained earnings of Corporation V for the year ended January 31, 2018 is prepared as follows.

Corporation V
Statement of Retained Earnings
For the Year Ended January 31, 2018
Particulars	$
Retained Earnings, January 1, 2018	1,419,700
Less: Net Loss	1,650
Dividends	0
Retained Earnings, December  31	1,421,350

Table (5)

7.

To determine

Prepare a classified balance sheet of Corporation V for the year ended January 31, 2018.

Explanation of Solution

Classified balance sheet: This is the financial statement of a company which shows the grouping of similar assets and liabilities under subheadings.

A classified balance sheet of Corporation V for the year ended January 31, 2018 is prepared as follows:

Corporation V
Balance Sheet
At January 31, 2018
Assets:	$	$
Current Assets
Cash	$1,431,500
Accounts Receivable	212,500
Supplies	17,700
Total Current Assets	1,661,700
Equipment	908,000
Building	422,000
Land	1,200,000
Total Assets		$4,191,700
Liabilities:
Current Liabilities
Accounts Payable	$113,350
Deferred Revenue	73,500
Total Current Liabilities	186,850
Notes Payable	83,500
Total Liabilities		270,350
Stockholders’ Equity
Common Stock	2,500,000
Retained Earnings	1,421,350
Total Stockholders’ Equity		3,921,350
Total Liabilities and Stockholders’ Equity		$4,191,700

Table (6)

8.

To determine

Calculate the net profit margin of the company.

Explanation of Solution

Profit Margin Ratio: Profit margin provides an indication of the earnings per dollar of sales, and it represents the net profit as a percentage of the revenues. Use the following formula to calculate the profit margin ratio.

$\text{Profit margin ratio}=\frac{\text{Net}\text{income}}{\text{Revenue}}\times 100$

The net profit margin of the Company is determined as follows:

$\begin{array}{c}\text{Profit margin ratio}=\frac{\text{Net}\text{income}}{\text{Revenues}}\times 100\\ =\frac{\$1,650}{\$395,000}\times 100\\ =0.4\%\end{array}$