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Copy of Chap004 1.doc
Copy_of_Chap004_1.doc
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Copy of Chap004 1.doc-Chapter 04 - Adjustments, Fi...
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Copy_of_Chap004_1.doc-Chapter 04 - Adjustments, Financial Statements,
Page 37
Chapter 04 - Adjustments, Financial Statements, and the Quality of Earnings
P4–6. (continued)
Req. 4
Net profit margin = Net Income
Net Sales = $(10,180) net loss
$64,960 = (15.7)%
The net profit margin indicates that, for every $1 of service revenues, Ramirez actually
lost $0.157 of net income.
This ratio implies that Ramirez destroys shareholder value
in generating its sales and suggests that better management of its business (in terms of
sales price or costs) is required.
Req. 5
Service revenue (
R)
.................................................
64,960
Retained earnings (
SE)
..........................................
10,180
Salary expense (
E)
..........................................
56,380
Depreciation expense (
E)
................................
11,900
Insurance expense (
E)
....................................
280
Income tax expense (
E)
...................................
6,580
4-37
Page 38
Chapter 04 - Adjustments, Financial Statements, and the Quality of Earnings
P4–7.
Req. 1
December 31, 2011, Adjusting Entries:
(
a
)
Supplies expense (+E,
SE)
.......................................
400
Supplies (
A)
....................................................
400
(
b
)
Insurance expense (+E,
SE)
.....................................
400
Prepaid insurance (
A)
.....................................
400
(
c
)
Depreciation expense (+E,
SE)
.................................
4,200
Accumulated depreciation (+XA,
A)
...............
4,200
(
d
)
Wages expense (+E,
SE)
...........................................
720
Wages payable (+L)
.........................................
720
(
e
)
Income tax expense (+E,
SE)
...................................
5,880
Income taxes payable (+L)
..............................
5,880
Req. 2
ELLIS, INC.
Income Statement
For the Year Ended December 31, 2011
Operating Revenue:
Service revenue
$61,600
Operating Expenses:
Supplies expense ($640 - $240)
400
Insurance expense
400
Depreciation expense
4,200
Wages expense
720
Remaining expenses (not detailed)
33,360
Total expenses
39,080
Operating Income
22,520
Income tax expense
5,880
Net Income
$16,640
Earnings per share ($16,640 ÷ 5,000 shares)
$3.33
4-38
Page 39
Chapter 04 - Adjustments, Financial Statements, and the Quality of Earnings
P4–7. (continued)
Req. 2 (continued)
ELLIS, INC.
Balance Sheet
At December 31, 2011
Assets
Liabilities and Stockholders’ Equity
Current Assets:
Current Liabilities:
Cash
$46,000
Accounts payable
$
2,400
Accounts receivable
10,400
Wages payable
720
Supplies
240
Income taxes payable
5,880
Prepaid insurance
400
Total current liabilities
9,000
Total current assets
57,040
Note payable, long term
16,000
Service trucks
16,000
Total liabilities
25,000
Accumulated depreciation
(13,800)
Stockholders' Equity
Other assets (not detailed)
8,960
Contributed capital
20,560
Retained earnings*
22,640
Total stockholders' equity
43,200
Total assets
$68,200
Total liabilities and
stockholders' equity
$68,200
*Unadjusted balance, $6,000 + Net income, $16,640 = Ending balance, $22,640.
Req. 3
December 31, 2011, Closing Entry:
Service revenue (
R)
....................................................
61,600
Retained earnings (+SE)
.................................
16,640
Supplies expense (
E)
.....................................
400
Insurance expense (
E)
...................................
400
Depreciation expense (
E)
...............................
4,200
Wages expense (
E)
........................................
720
Remaining expenses (not detailed) (
E)
...........
33,360
Income tax expense (
E)
.................................
5,880
4-39
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