Chapter 3, Problem 6P

1.

To determine

Journalize the given transactions.

Explanation of Solution

Journalize the given transactions:

Date	Account Title and Explanation	Debit ($)	Credit ($)
a	Cash (+A)	$1,390
	Receivables (+A)	$24,704
	Delivery Service revenue (+SE, +R)		$26,094
	(To record the sales)
b	Property and equipment (+A)	$3,434
	Long-term notes payable (+L)		$3,434
	(To record the long-term notes payable)
c	Rent expense (+E) (-SE)	$3,136
	Prepaid rent (+A)	$4,728
	Cash (-A)		$7,864
	(To record the rent expense and prepaid rent)
d	Repairs expense (+E) (-SE)	$864
	Cash (-A)		$864
	(To record the expenses paid)
e	Cash (+A)	$24,285
	Receivable (-A)		$24,285
	(To record the receivables collected)
f	Long-term notes payable (-L)	$150
	Cash (-A)		$150
	(To record the payment of long-term notes payable)
g	Cash (+A)	$16
	Common Stock (+SE)		$2
	Additional paid-in-capital (+SE)		$14
	(To record the receipt of stock)
h	Wages (+E) (-SE)	$9,276
	Cash (-A)		$9,276
	(To record the wages paid)
i	Spare parts, supplies, and fuel (+A)	$6,564
	Cash (-A)		$6,564
	(To record the sales revenues)
j	Spare parts, supplies, and fuel expense (+E) (-SE)	$6,450
	Spare parts, supplies, and fuel (-A)		$6,450
	(To record the sales revenues)
k	Accounts payable (-L)	$784
	Cash (-A)		$784
	(To record the sales revenues)
l	No entry

Table (1)

2

To determine

Prepare the T- account and enter the transaction into their respective accounts for calculating the ending balance.

Explanation of Solution

Prepare the T-accounts:

Cash account:

Receivables account:

Spare parts, supplies and fuel account:

Prepaid expenses account:

Other current asset account:

Property and equipment account:

Other non-current asset account:

Accounts payable account:

Accrued expenses payable account:

Other current liabilities account:

Long-term note payable account:

Other non-current liabilities account:

Common stock account:

Additional paid-in capital account:

Retained earnings account:

Delivery service revenue account:

Aircraft rental expense account:

Maintenance and repair expense account:

Wage expense account:

Fuel expense account:

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

3.

To determine

Prepare an income statement for the month May.

Explanation of Solution

Prepare an income statement:

Company F
Income statement (Unadjusted)
For the year ended May 31 (in millions)
Particulars	Amount ($)	Amount ($)
Revenues:
Delivery service revenue	26,094
Total revenues (A)		26,094
Expenses:
Rental expense	3,136
Fuel expense	9,276
Wage expense	6,450
Repair expense	864
Total expenses (B)		19,726
Net Income $\left(\text{A}-\text{B}\right)$		$6,368

Table (2)

Hence, the net income of Company F is $6,368 million.

4.

To determine

Compute the net profit margin ratio and based on the result give suggestion to the company.

Explanation of Solution

Compute the net profit margin ratio:

$\begin{array}{c}\text{Net profit margin ratio}=\frac{\text{Net income}}{\text{Net sales revenue}}\\ =\frac{\$6,368}{\$26,094}\\ =0.24\end{array}$

Hence, the net profit margin ratio is 0.24.

Suggestion:

• By evaluating the net profit margin ratio, the company has earned $0.24 in net income for every $ 1 in the sales revenue.
• To know the better result about the company, net profit margin ratio should be calculated to identify the way in which the management is generating its revenue and controlling the various expenses.