Unit 2 Assignment 1 Financial Accounting

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P3-4

P3-4 Analyzing the Effects of Transactions Using T-Accounts, Preparing an Income Statement, and Evaluating the Net Profit Margin Ratio as a Manager LO3-4, 3-5, 3-6
Kaylee James, a connoisseur of fine chocolate, opened Kaylee’s Sweets in Collegetown on February 1, 2014. 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 February 2014, the first month of operations.
a. Received four shareholders’ contributions totaling $30,200 cash to form the corporation; issued 400 shares of $.10 par value common stock.
b. Paid three months' rent for the store at $1,750 per month (recorded as prepaid expenses).
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.
f. Used the money from (e) to purchase a computer for $2,750 (for recordkeeping and inventory tracking); 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 on Valentine's Day 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 during the rest of the month. The cost of the candy sold was $600.
Required:
1 & 2. Record in the T-accounts the effects of each transaction for Kaylee’s Sweets in February, referencing each transaction in the accounts with the transaction
letter. Show the ending balances in the T-accounts. An example amount has been posted to the Cash T-Account from transaction (l).
Cash Accounts Receivable
Beg. bal. Beg. bal.
400 (l)
End. bal.
End. bal. 400
Supplies Inventory
Beg. bal. Beg. bal.
End. bal. End. bal.
Prepaid Expenses Equipment
Beg. bal. Beg. bal.
End. bal. End. bal.
Furniture and Fixtures Accounts Payable
Beg. bal. Beg. bal.
End. bal. End. bal.
Notes Payable Common Stock
Beg. bal. Beg. bal.
End. bal. End. bal.
Additional Paid-in Capital Sales Revenue
Beg. bal. Beg. bal.
End. bal. End. bal.
Cost of Goods Sold Repair Expense
Beg. bal. Beg. bal.
End. bal.
End. bal.
Advertising Expense Wage Expense
Beg. bal. Beg. bal.
End. bal. End. bal.
Required:
3 Prepare an income statement at the end of the month ended February 28, 2014.
KAYLEE’S SWEETS
Income Statement (unadjusted)
For the Month Ended February 28, 2014
Revenues:
Expenses:
Total cost and expenses -
Required:
5 After three years in business, you are being evaluated for a promotion. One measure is how effectively you managed the sales and expenses of the business.
    The following data are available:
 2016*   2015   2014
  Total assets $ 88,000 $ 58,500 $ 52,500
  Total liabilities 49,500 22,000 18,500
  Total stockholders’ equity 38,500 36,500 34,000
  Net sale revenue 93,500 82,500 55,000
  Net income 22,000 11,000 4,400
* At the end of 2016, Kaylee decided to open a second store, requiring loans and inventory
purchases prior to the store’s opening in early 2017.
5-a. Calculate the net profit margin ratio for each year. (Round your answers to 1 decimal place.)
Net Profit Margin Ratio
2016 %
2015 %
2014 %
5-b. Do you think you should be promoted?

YES

NO

CP3-2

CP3-2 Finding Financial Information LO3-2, 3-4, 3-6
Refer to the financial statements of Urban Outfitters in Appendix C at the end of the book.
Required:
1. What is the company's revenue recognition policy? (Hint: Look in the notes to the financial statements.)
C
2. Assuming that $50 million of cost of sales was due to noninventory purchase expenses (distribution and occupancy costs), how
much inventory did the company buy during the year? (Hint: Use a T-account of inventory to infer how much was purchased.)
INVENTORY (in thousands)
Inventory purchased during the year:
3. Calculate selling, general, and administrative expenses as a percent of sales for each year presented. (Dollars in thousands.)
Year Ended SG&A Expenses / Net Sales Revenue = Percentage
2012
2011
2010
By what percent did these expenses increase or decrease from fiscal years ended 2011 and 2012 and between 2010 and 2011?
(Hint: Percentage Change = [Current Year Amount − Prior Year Amount]/Prior Year Amount.)
% Change Incr. or Decr.
Between years ended 2011 and 2012:
Between years ended 2010 and 2011:
4. Compute the company's net profit margin for each year presented. (Dollars in thousands.)
Fiscal Year Ended Net Income / Net Sales (or Operating) Revenues = Net Profit Margin Ratio
2012
2011
2010
Explain net profit margin ratio and discuss the results shown above.

P3-4 Check Figures

P3-4 Analyzing the Effects of Transactions Using T-Accounts, Preparing an Income Statement, and Evaluating the Net Profit Margin Ratio as a Manager LO3-4, 3-5, 3-6
Kaylee James, a connoisseur of fine chocolate, opened Kaylee’s Sweets in Collegetown on February 1, 2014. 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 February 2014, the first month of operations.
a. Received four shareholders’ contributions totaling $30,200 cash to form the corporation; issued 400 shares of $.10 par value common stock.
b. Paid three months' rent for the store at $1,750 per month (recorded as prepaid expenses).
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.
f. Used the money from (e) to purchase a computer for $2,750 (for recordkeeping and inventory tracking); 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 on Valentine's Day 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 during the rest of the month. The cost of the candy sold was $600.
Required:
1 & 2. Record in the T-accounts the effects of each transaction for Kaylee’s Sweets in February, referencing each transaction in the accounts with the transaction
letter. Show the ending balances in the T-accounts. An example amount has been posted to the Cash T-Account from transaction (l).
Cash Accounts Receivable
Beg. bal. Beg. bal.
400 (l)
End. bal.
End. bal.
Supplies Inventory
Beg. bal. Beg. bal.
End. bal. End. bal.
Prepaid Expenses Equipment
Beg. bal. Beg. bal.
End. bal. End. bal.
Furniture and Fixtures Accounts Payable
Beg. bal. Beg. bal.
End. bal. End. bal.
Notes Payable Common Stock
Beg. bal. Beg. bal.
End. bal. End. bal.
Additional Paid-in Capital Sales Revenue
Beg. bal. Beg. bal.
End. bal. End. bal.
Cost of Goods Sold Repair Expense
Beg. bal. Beg. bal.
End. bal.
End. bal.
Advertising Expense Wage Expense
Beg. bal. Beg. bal.
End. bal. End. bal.
Required:
3 Prepare an income statement at the end of the month ended February 28, 2014.
KAYLEE’S SWEETS
Income Statement (unadjusted)
For the Month Ended February 28, 2014
Revenues:
Expenses:
Total cost and expenses 0
Net income $400
Required:
5 After three years in business, you are being evaluated for a promotion. One measure is how effectively you managed the sales and expenses of the business.
    The following data are available:
 2016*   2015   2014
  Total assets $ 88,000   $ 58,500   $ 52,500  
  Total liabilities 49,500   22,000   18,500  
  Total stockholders’ equity 38,500   36,500   34,000  
  Net sale revenue 93,500   82,500   55,000  
  Net income 22,000   11,000   4,400  
* At the end of 2016, Kaylee decided to open a second store, requiring loans and inventory
purchases prior to the store’s opening in early 2017.
5-a. Calculate the net profit margin ratio for each year. (Round your answers to 1 decimal place.)
Net Profit Margin Ratio
2016 %
2015 %
2014 %
5-b. Do you think you should be promoted?

YES

NO

CP3-2 Check Figures

CP3-2 Finding Financial Information LO3-2, 3-4, 3-6
Refer to the financial statements of Urban Outfitters in Appendix C at the end of the book.
Required:
1. What is the company's revenue recognition policy? (Hint: Look in the notes to the financial statements.)
2. Assuming that $50 million of cost of sales was due to noninventory purchase expenses (distribution and occupancy costs), how
much inventory did the company buy during the year? (Hint: Use a T-account of inventory to infer how much was purchased.)
INVENTORY (in thousands)
Inventory purchased during the year:
3. Calculate selling, general, and administrative expenses as a percent of sales for each year presented. (Dollars in thousands.)
Year Ended SG&A Expenses / Net Sales Revenue = Percentage
2012
2011
2010
By what percent did these expenses increase or decrease from fiscal years ended 2011 and 2012 and between 2010 and 2011?
(Hint: Percentage Change = [Current Year Amount − Prior Year Amount]/Prior Year Amount.)
% Change Incr. or Decr.
Between years ended 2011 and 2012:
Between years ended 2010 and 2011:
4. Compute the company's net profit margin for each year presented. (Dollars in thousands.)
Fiscal Year Ended Net Income / Net Sales (or Operating) Revenues = Net Profit Margin Ratio
2012 7.5%
2011
2010
Explain net profit margin ratio and discuss the results shown above.

Sheet2

List 1 21 12
(a) Net income Accounts payable
(b) Net loss Accounts receivable
(c) Additional paid-in-capital
(d) Advertising expense
(e) Cash
(f) Commission expense
(g) Common stock
(h) Consulting expense
(i) Cost of goods sold
(j) Equipment
(k) Fuel expense
(l) Games revenue
(m) Insurance expense
Interest expense
Interest revenue
Inventory
Land
Miscellaneous expenses
Notes payable (long-term)
Notes payable (short-term)
Prepaid expenses
Rent expense
Rent revenue
Repair expense
Retained earnings
Sales revenue
Supplies
Supplies expense
Unearned revenue
Utilities expense
Wage expense
Wages payable