Chapter 3, Problem 3.21E

Determining the Effects of Various Transactions

EZ Reader was founded in January to provide text reading and recording services. Selected transactions for EZ Reader’s first month of business are as follows:

1. a. Issued common stock to investors for $50,000 cash.
2. b. Billed customers $10,500 for services performed in January.
3. c. Purchased equipment for $24,500 for use in the business. Paid in cash.
4. d. Purchased $2,400 of supplies on account.
5. e. Received $7,500 cash from customers billed in transaction (b).
6. f. Used $1,500 in utilities, which will be paid in February.
7. g. Paid employees $3,500 cash for work done in January.
8. h. Paid $1,200 cash toward supplies purchased in transaction (d).

Required:

For each transaction, give (a) the name of the account being debited or credited, (b) the basic account type (A, L, SE, R, E), (c) whether the account is increased (+) or decreased (−) due to the transaction, and (d) whether the account normally holds a debit or credit balance. Transaction (a) has been given as an example. Also, calculate the company’s preliminary net income and net profit margin (expressed as a percent to one decimal place).