Accounting Quiz

Quiz 2 Kaylee’s Sweets

Kaylee James opened Kaylee’s Sweets on January 1, 2016. The shop specializes in a selection of gourmet chocolate candies and a line of gourmet ice cream. You have been hired as manager. Your duties include maintaining the store’s financial records. The following transactions occurred in January, the first month of operations.

a. Received four shareholders’ contributions totaling $30,200 cash to form the corporation; issued 400 shares of $0.10 par value common stock.

b. Paid three months’ rent for the store at $1,750 per month (two months are prepaid).

c. Purchased and received candy for $6,000 on account, due in 60 days.

d. Purchased supplies for $1,560 cash.

e. Negotiated and signed a two-year $11,000 loan at the bank, receiving cash at the time.

f. Used the money from (e) to purchase a computer for $2,750; used the balance for furniture and fixtures for the store.

g. Placed a grand opening advertisement in the local paper for $400 cash; the ad ran in the current month.

h. Made sales the first two weeks totaling $3,500; $2,675 was in cash and the rest on accounts receivable. The cost of the candy sold was $1,600.

i. Made a $550 payment on accounts payable.

j. Incurred and paid employee wages of $1,300.

k. Collected accounts receivable of $600 from customers.

l. Made a repair to one of the display cases for $400 cash.

m. Made cash sales of $1,200 for the rest of the month. The cost of the candy sold was $600.

Required

1. Record journal entries for each of the transactions.

Kaylee’s Sweets Journal Entry (2016)
Date	Description	Debit	Credit
A	Cash Contributions	$30,200.00
	Common Stock (400x .10)		$40.00
	Additional Paid in Capital (being stock issued)		$30,160.00
B	Prepaid Rent	$5,250.00
	Cash (rent paid in advance)		$5,250.00
C	Inventory (Candy)	$6,000.00
			$6,000.00
D	Supplies	$1,560.00
	Cash		$1,560.00
E	Cash	$11,000.00
	Bank Loan		$11,000.00
F	Computer	$2,750.00
	Furniture & Fixtures	$8,250.00
	Cash		$11,000.00
G	Advertisement (Local Paper)	$400.00
	Cash		$400.00
H	Cash	$2,675.00
	Accounts Receivable	$850.00
	Sales Total		$3,500.00
	Candy Costs	$1,600.00
	Inventory of candy		$1,600.00
I	Accounts Payable	$550.00
	Cash (paid)		$550.00
J	Salaries & Wages	$1,300.00
	Cash		$1,300.00
K	Cash (from Customers)	$600.00
	Accounts Receivable		$600.00
L	Repairs	$400.00
	Cash		$400.00
M	Cash Sales	$1,200.00
	Sales		$1,200.00
	Goods Sold	$600.00
	Inventory of candy		$600.00

2. Prepare an income statement at the end of the first month of operations ended January 31.

Kaylee’s Sweets Income Statement- January 2016
Particulars	Amount	Amount
Sales	$4,700.00
Cost of Goods Sold	$2,200.00
Net sales		$2,500.00
Less: Expenses
Rent	$1,750.00
Advertising Expenses	$400.00
Repairs	$400.00
Salaries & Wages	$1,300.00
Total		$3,850.00
Net Profit		$-1,350

3. Prepare a balance sheet as of January 31.

Kaylee’s Sweets

Balance Sheet at January 31, 2016

Assets	Amount in $	Liabilities	Amount in $
Current Assets	Current Liabilities
Cash	$25,215.00	Accounts Payable	$5,450.00
Accounts Receivable	$225.00	Bank Loan	$11,000.00
Supplies	$1,560.00	Total Current Liabilities	$16,450.00
Inventory	$3,800.00
Prepaid Rent	$3,500.00	Stock Holder’s Equity
Total Current Assets	$34,300.00	Common Stock	$40.00
Fixed Assets	Additional Paid in Capital	$30,160.00
Computer	$2,750.00	Retained Earnings	$-1,350.00
Furnitures and Fixtures	$8,250.00	Total Stock Holder’s Equity	$28,850.00
Total Fixed Assets	$11,000.00
Total Assets	$45,300.00	Total Liabilities	$45,300

4. Write a short memo to Kaylee offering your opinion on the results of operations during the first month of business.

In the first month of business, Kaylee has a loss of $1,350, which is due to indirect expenses like rent, utility, employee salaries, furniture and other costs. If indirect expenses can be lessened, the profits will increase for the business.

5. After three years in business the following data was computed. Based on this information provide a report to Kaylee on the performance of the store.

Year	2016	2017	2018
Total Assets	$52,500	$58,500	$66,000
Total Liabilities	18,500	22,000	27,500
Total Equity	34,000	36,500	38,500
Sales Revenue	55,000	82,500	93,500
Net Income	4,400	11,000	22,000

Net income is what is remaining after subtracting all costs. Using net income to assess how the business is performing, Kaylee’s Sweets is performing well and gaining profitability. Kaylee’s Sweets also has more assets than liabilities for each year, which is a good sign of performance. Overall, Kaylee’s Sweets is performing well.