Assignment Questions - Suggested Answers (E3-7, E3-10, E3-11, P3-4, P3-6) E3-7. (Dollars in Millions)
Assignment Questions - Suggested Answers (E3-7, E3-10, E3-11, P3-4, P3-6) E3-7. (Dollars in Millions)
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ACCT1101 – Introduction to Financial Accounting
Assignment Suggested Solutions – Chapter 3
E3–7. (continued)
2
ACCT1101 – Introduction to Financial Accounting
Assignment Suggested Solutions – Chapter 3
E3–10.
Req. 1 and 2
Additional
Common Stock Paid-in Capital Retained Earnings
1,600 Beg. 7,000 Beg. 11,560 Beg.
100 (h) 820 (h) (j) 2,200
1,700 7,820 9,360
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ACCT1101 – Introduction to Financial Accounting
Assignment Suggested Solutions – Chapter 3
E3–10. (continued)
Req. 3
Req. 4
Cash basis net income ($7,890) is higher than accrual basis net income ($2,950)
because of the differences in the timing of recording revenues versus receipts and
expenses versus disbursements between the two methods. The $7,800 higher amount
in cash receipts over revenues includes cash received prior to being earned (from (b),
$600) and cash received after being earned (in (d), $7,200). The $2,860 higher amount
in cash disbursements over expenses includes cash paid after being incurred in the
prior period (in (g), $2,300), plus cash paid for supplies to be used and expensed in the
future (in (k), $960), less an expense incurred in January to be paid in February (in (e),
$400).
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ACCT1101 – Introduction to Financial Accounting
Assignment Suggested Solutions – Chapter 3
E3–11.
Operating Revenues:
Rebuilding fees revenue $ 19,000
Total operating revenues 19,000
Operating Expenses:
Wages expense 16,500
Utilities expense 400
Total operating expenses 16,900
Operating Income 2,100
Other Item:
Rent revenue 850
Net Income $ 2,950
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ACCT1101 – Introduction to Financial Accounting
Assignment Suggested Solutions – Chapter 3
P3–4.
Req. 1 and 2
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ACCT1101 – Introduction to Financial Accounting
Assignment Suggested Solutions – Chapter 3
P3–4. (continued)
Req. 3
KAYLEE’S SWEETS
Income Statement (unadjusted)
For the Month Ended February 28
Revenues:
Sales revenue $ 4,700
Expenses:
Cost of goods sold 2,200
Advertising expense 400
Wage expense 1,300
Repair expense 400
Total expenses 4,300
Net Income $ 400
Req. 4
Req. 5
Net Income ÷ Net Sales Revenue = Net Profit Margin Ratio
2021 $22,000 $93,500 0.235 or 23.5%
2020 11,000 82,500 0.133 or 13.3%
2019 4,400 55,000 0.080 or 8.0%
The ratio increased each year, nearly quadrupling in three years. This suggests that the
company’s management is very effective at generating sales and controlling expenses.
As long as the expenses related to opening the new store are not greater as a
percentage of sales revenue than currently, the company should continue to experience
a high net profit margin. Based on this rationale, the manager should be promoted.
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ACCT1101 – Introduction to Financial Accounting
Assignment Suggested Solutions – Chapter 3
P3–6.
Debit Credit
(a) Cash (+A) 1,390
Receivables (+A) 24,704
Delivery service revenue (+R, +SE) 26,094
(j) Spare parts, supplies, and fuel expense (+E, –SE) 6,450
Spare parts, supplies, and fuel (–A) 6,450
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ACCT1101 – Introduction to Financial Accounting
Assignment Suggested Solutions – Chapter 3
P3–6. (continued)
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ACCT1101 – Introduction to Financial Accounting
Assignment Suggested Solutions – Chapter 3
P3–6. (continued)
Req. 3
FedEx
Income Statement (unadjusted)
For the Year Ended May 31 (current year)
(in millions)
Revenues:
Delivery service revenue $ 26,094
Expenses:
Rent expense 3,136
Wages expense 9,276
Spare parts, supplies, and fuel expense 6,450
Repairs expense 864
Total expenses 19,726
Net Income $ 6,368
Req. 4
The net profit margin ratio suggests that the company obtained $0.24 in net income for
every $1 in service revenue. To analyze this result, we would need to calculate the ratio
for the company over time to observe the trend in how effectively management is at
generating sales and/or controlling expenses. We would also need the industry ratio or
competitors’ ratios for the current period to determine how the company is doing in
comparison to others in the industry.
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