Reference no: EM131110280

Assignment

1. Identifying Accrual Basis Revenues:

For following transactions of ZZZ Bowling Inc. in July, determine if revenue is recognized in July and indicate the amount. Otherwise, explain why revenue is NOT recognized in July:

Activity	Revenue recognized in July?	Amount or explain why   not recognized
Company collected $12,000 from customers for services related to   games played in July.
Company billed a customer for $250 for a party held at the   bowling center on July 31st. Bill is to be paid in August.
The bowling leagues gave the company advance payments of $1,500   for the fall season that starts in September.
Company received $1,000 from credit sales made in June.

2. Identifying Accrual Basis Expenses:

The following transactions are July activities of Bill's Bowling Inc., which operates bowling centers. If an expense is recognized in July, indicate the amount. If not recognized, explain why.

Activity	Expense recognized in July?	Amount or explain why   not recognized
Bill's paid $1,500 to   plumbers for repairing a broken pipe in the restrooms.
Bill's paid $2,000 for   the June electricity bill and received the July bill for $2,500, which will   be paid in August.
Bill's paid $5,475 to   employees for work in July.

3. From a Trial Balance to Financial Statements:

From the following accounts from ERI Corp as of December 31, create an I/S, Statement of Retained Earnings and a B/S:

Account Name	Debits	Credits
Cash	$59,750
Accounts Receivable	3,300
Prepaid Insurance	4,700
Equipment	64,600
Land	23,000
Accounts Payable		$29,230
Unearned Revenue		1,500
Notes Payable   (long-term)		74,000
Common Stock		5,000
beginning Retained Earnings as of Jan 1		14,500
Dividends	0
Service Revenue		35,700
Salaries and Wages   Expense	3,900
Repairs and Maintenance Expense	410
Office Expenses	270
Totals	$159,930	$159,930

ERI Corp. Income Statement For the Year Ended December 31
Revenues:
Service Revenue
Total Revenues
Expenses:
Salaries and Wages Expense
Repairs and Maintenance Expense
Office Expenses
Total Expenses
Net Income

ERI Corp. Statement of Retained Earnings For the Year Ended December 31
Retained Earnings,   Jan. 1
Add: Net Income
Subtract: Dividends
Retained Earnings, Dec. 31

ERI Corp. Balance Sheet At December 31
Assets
Current Assets
Cash
Accounts Receivable
Prepaid Insurance
Total Current Assets
Equipment
Land
Total Assets
Liabilities
Current Liabilities
Accounts Payable
Unearned Revenue
Total Current Liabilities
Notes Payable   (long-term)
Total Liabilities
Stockholders' Equity
Common Stock
Retained Earnings
Total Stockholders' Equity
Total Liabilities and   Stockholders' Equity

4. Net Profit Margin: 

Calculate the net profit margins for the following two companies and comment on them: 

	Net Income	Total Assets	Total Liabilities	Total Revenues
Expedia	$280	7,090	4,800	4,030
Priceline	1,420	6,570	2,670	5,260

5. Net Profit Margins in years t and t-1:

Compute the net profit margin of this year and compare that with last year's net profit margin of 15%.

Total assets	$100,000
Total liabilities	60,000
Common stock	10,000
Dividends	5,000
Expenses	80,000
Retained earnings (beginning of year)	15,000

Helpful Tip: Debit and credit still confuse many students. Just think of debit and credit as left and right. Luckily, credit has an "R" for right. In an income statement, you see revenues and expenses. Luckily again, revenue has an "R" for right.

A recap of B/S: Asset items show on the left side of the B/S, hence increase in asset item is recorded on the left, i.e., the debit. Decrease in asset will be on the right hand side. Liability and equity items are credit items, and increase of L or SE shows up on the right. Again, decrease in L or SE item will show up on the left side.

The whole income statement (I/S) boils down to one item in the B/S, Retained earnings. Remember Revenues minus expenses equal to net income, and net income - dividends = retained earnings. IOW, all the revenues and expenses of a firm in an accounting period (like a month, quarter or a year) is summarized in one number (=net income), which is the change in Retained earnings item in the B/S at the end of the period.

Journal entries and T-accounts work about the same way for income statement items.

Example (1), ABC Corp makes a cash sale of $500.

1. You know cash and revenue are account titles here. Cash is asset, and its increase is a "left" side item.

2. Revenue is credit, and its increase is written on the right side of journal and T-account.

Result in the Journal

Cash                   500

Revenue              500

Result in T-accounts

Cash	Revenue
500 |	|          500
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Example (2), ABC Corp receives cash $500 before its delivery.

1. Cash is asset, and its increase is a "left" side item.

2. Since product is not delivered yet, ABC doesn't recognize revenue yet. Instead, we use a title called "Unearned revenue," which is a liability of ABC. Increase in liability will be on the right side of journal and T-account.

Result in the Journal

Cash                     500

Unearned Revenue  500

Result in T-accounts

Cash	Unearned revenue
500	500
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When the product is actually delivered, this is what happens:

Unearned Revenue           500

Revenue                         500

Result in T-accounts

Unearned revenue		Revenue
500 |	500	|          500
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