Chapter 3, Problem 5BPSB

Problem 3-5B Preparing financial statements from the adjusted trial balance and computing profit margin P6 A1 The adjusted trial balance for Speedy Courier as of December 31 follows.

Debit Credit

Cash......................................... $ 58,000
Accounts receivable ............................ 120,000
Interest receivable.............................. 7,000
Notes receivable (due in 90 days} ................. 210,000
Office supplies................................. 22,000
Trucks........................................134,000
Accumulated depreciation-Trucks ................ $ 58.000
Equipment.................................... 270,000
Accumulated depreciation-Equipment............. 200,000
Land......................................... 100,000
Accounts payable .............................. 134.000
Interest payable................................ 20,000
Salaries payable ............................... 28,000
Unearned delivery fees.......................... 120,000
Long-term notes payable ........................ 200,000
L. Horace, Capital .............................. 125,000
L Horace. Withdrawals.......................... 50,000
Delivery fees earned............................ 611,8O0
Interest earned ................................ 34,000
Depreciation expense—Trucks.................... 29,000
Depreciation expense—Equipment ................ 48,000
Salaries expense............................... 74,000
Wages expense................................ 300,000
Interest expense ............................... 15,000
Office supplies expense ......................... 31,000
Advertising expense ............................ 27,200
Repairs expense—Trucks ........................ 35,600 -
_Totals......................................... $1,530,800 $1,530,800

Required

1. Use the information in the adjusted trial balance to prepare (a) the income statement for the year ended December 31; (6) the statement of owner's equity for the year ended December 31 [Note: L. Horace, Capital at Dec. 31 of year was S125_:000]; and (c) the balance sheet as of December 31.
2. Compute the profit margin for the year (use total revenues as the denominator).

To determine

Introduction:

Income statement gives a picture of the financial performance of the company during the year and it forms a part of the financial statements.

Owner's equity is a statement which provides the owner's capital balance by determining the amount of investment, income transferred, and drawings.

The balance sheet is the financial statement which helps the investors to know te overall picture of the company showing the summarized assets, liabilities, and equity held by the shareholders during the year.

To Prepare:

The financial statement i.e. income statement, statement of owner's equity and balance sheet as of December, 31.

Answer to Problem 5BPSB

The financial statement refers to the income statement, owner's equity and balance sheet which are drawn here.

Explanation of Solution

Adjusted trial balances are given.

Hence:

(a) Income Statement is as follows:

Speedy Courier
Income Statement
For Year Ended December 31
Particulars	Amount   $(\$)$	Amount   $(\$)$
Revenue:
Delivery fees earned		$611,800$
Interest earned		$34,000$
Total revenues (A)		$645,800$
Expenses:
Depreciation expense-Trucks	$29,000$
Depreciation expense-Equipment	$48,000$
Salaries expense	$74,000$
Wages expense	$300,000$
Interest expense	$15,000$
Office supplies expense	$31,000$
Advertising expense	$27,200$
Repair expense-Automobiles	$35,600$
Total Expenses(B)		$559,800$
Net income (A-B)		$\$86,000$

(b) Statement of owner's equity is as follows:

Speedy Courier
Statement of Owner's Equity
For Year Ended December 31
Particulars	Amount   $(\$)$
Owner's equity, December 31 of the prior year	$125,000$
Add: Net Income	$86,000$
	$211,000$
Less: Withdrawals	$50,000$
Owner's equity, December 31 of the current year	$\$161,000$

(c) Balance Sheet is as follows:

Speedy Courier
Balance Sheet
as on December 31
Assets	Amount   $(\$)$	Amount   $(\$)$
Cash		$58,000$
Account receivable		$120,000$
Interest receivable		$7,000$
Notes receivable		$210,000$
Office supplies		$22,000$
Automobiles	$134,000$
Accumulated depreciation-Automobiles	$58,000$	$76,000$
Office equipment	$270,000$
Accumulated depreciation-Office equipment	$(200,000)$	$70,000$
Land		$100,000$
Total assets		$\$663,000$
Liabilities & Equity
Liabilities
Account payable	$134,000$
Interest payable	$20,000$
Salaries payable	$28,000$
Unearned consulting fees	$120,000$
Long-term notes payable	$200,000$
Total Liabilities		$502,000$
Owner's equity		$161,000$
Total liabilities and equity		$\$663,000$

Conclusion:

Thus, these are the income statement, owner's equity statement, and balance sheet of Speedy Courier.

To determine

Introduction:

Profit Margin is the ratio which is a useful measure to calculate the company's operating results. In other words, it is a ratio of its net income to its net sales.

To calculate:

The profit margin for the year.

Answer to Problem 5BPSB

The profit margin of Speedy Courier for the year ended on December 31 : $13.3\%$

Explanation of Solution

Adjusted trial balances are given

Hence, the ratio of Profit margin is computed as follows:

Profit Margin = Net Income

Total Revenue

= $\$86,000$

$\$645,800$

= $13.3\%$

Conclusion:

Thus, the profit margin of Speedy Courier is $13.3\%$ .