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Gala2k [10]
3 years ago
12

An international children’s charity collects donations, which are used to buy clothing and toys for children in need. The charit

y records donations of cash and other items as Donations Revenue when received. Received $8,500 in cash and checks from a door-to-door campaign. Incurred and paid $3,000 cash for employee wages this month. Paid $3,420 cash on a short-term loan from the bank (ignore interest). Bought $4,920 worth of new toy supplies from a large toy manufacturer, paying $2,080 cash and signing a short-term note for $2,840. The manufacturer generously donated an additional $4,020 of toy supplies.
Required:
Prepare journal entries for the above transactions, which occurred during a recent month. Determine the charity’s preliminary net income.
Business
1 answer:
MatroZZZ [7]3 years ago
7 0

Answer:

Required 1

<u>General Journal</u>

Cash $8,500 (debit)

Donations Revenue $8,500 (credit)

<em>Cash and Checks received as Donation Revenue</em>

<em />

Wages Expenses $3,000 (debit)

Cash $3,000 (credit)

<em>Wages to employee paid</em>

<em />

Note Payable $3,420 (debit)

Cash $3,420 (credit)

<em>Repayment of Short Term Loan</em>

<em />

Supplies $4,920 (debit)

Cash $2,080 (credit)

Note Payable $2,840 (credit)

<em>Purchase of Toys on cash and on credit</em>

<em />

Supplies $4,020 (debit)

Donations Revenue $4,020 (credit)

<em>Donations revenue received in form of Toy Supplies</em>

Required 2

Net Income is $9,520

Explanation:

<u>Calculation of Charity’s preliminary net income.</u>

Donations Revenue ($8,500 + $4,020)  $12,520

Less Expenses :

Wages                                                       ($3,000)

Net Income/ (Loss)                                    $9,520

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Answer:

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Explanation:

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Compute the current ratio, acid-test ratio, and gross margin ratio as of January 31, 2013. (Round your answers to 2 decimal plac
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Answer:

NELSON COMPANY

A. Current Ratio = Current Assets/Current Liabilities

= $38,500/$13,000

= 2.96 : 1

B. Acid-test Ratio = Current Assets - Inventory/Current Liabilities

= $24,600/$13,000

= 1.89 : 1

C. Gross margin ratio = Gross margin/Net Sales x 100

= $70,750/$110,950 x 100

= 63.77%

Explanation:

a) Data and Calculations:

NELSON COMPANY

1. Unadjusted Trial Balance  as of January 31, 2013

                                                       Debit     Credit

Cash                                          $ 24,600

Merchandise inventory                12,500

Store supplies                               5,900

Prepaid insurance                         2,300

Store equipment                        42,900

Accumulated depreciation—

    Store equipment                                  $ 19,950

Accounts payable                                         13,000

J. Nelson, Capital                                        39,000

J. Nelson, Withdrawals                2,100

Sales                                                            115,200

Sales discounts                          2,000

Sales returns and allowances   2,250

Cost of goods sold                  38,000

Depreciation expense—

      Store equipment              0

Salaries expense                     31,300

Insurance expense                 0

Rent expense                         14,000

Store supplies expense         0

Advertising expense              9,300

Totals                                $ 187,150       $ 187,150

2. Adjusted Trial Balance as of January 31, 2013

                                                       Debit     Credit

Cash                                          $ 24,600

Merchandise inventory                10,300

Store supplies                                2,800

Prepaid insurance                             800

Store equipment                         42,900

Accumulated depreciation—

    Store equipment                                  $ 21,625

Accounts payable                                         13,000

J. Nelson, Capital                                        39,000

J. Nelson, Withdrawals                2,100

Sales                                                            115,200

Sales discounts                          2,000

Sales returns and allowances   2,250

Cost of goods sold                  40,200

Depreciation expense—

      Store equipment                 1,675

Salaries expense                     31,300

Insurance expense                   1,500

Rent expense                         14,000

Store supplies expense           3,100

Advertising expense               9,300

Totals                               $ 188,825      $ 188,825

3. NELSON COMPANY

Income Statement for the year ended January 31, 2013:

Sales Revenue                                     $110,950

Cost of goods sold                                40,200

Gross profit                                          $70,750

Depreciation expense—

      Store equipment                 1,675

Salaries expense                     31,300

Insurance expense                   1,500

Rent expense                         14,000

Store supplies expense           3,100

Advertising expense               9,300    60,875  

Net Income                                         $ 9,875

4. Sales Revenue                    $115,200

   Sales discount & allowances (4,250)

  Net Sales Revenue             $110,950

5. NELSON COMPANY

Balance Sheet as of January 31, 2013:

Assets:

Cash                                                         $ 24,600

Merchandise inventory                               10,300

Store supplies                                               2,800

Prepaid insurance                                            800

Current Assets:                                           38,500

Store equipment                         42,900

Accumulated depreciation—

    Store equipment                   (21,625)     21,275

Total Assets                                             $ 59,775

Liabilities + Equity:

Accounts payable                                       $13,000

J. Nelson, Capital                                         39,000

J. Nelson, Withdrawals                                 (2,100 )

Net Income                                                 $ 9,875

Total Liabilities + Equity                         $ 59,775

a) Nelson Company's current ratio is the measure of the company's ability to settle maturing short-term liabilities with short-term financial resources.  It is is measured as the relationship between current assets and current liabilities.

b) Nelson's acid-test ratio takes away the encumbrances that can slow the conversion of current assets into cash for the settlement of current liabilities.  In this case, the inventory, stores supplies, and prepaid insurance are excluded.

c) Nelson has a robust gross margin ratio of more than 60%.  This means that it is able to limit the cost of goods sold to below 40%.  However, management of Nelson Company is unable to control its periodic costs in order to generate reasonable net income, as it can only turn less than 9% of the sales into returns for J. Nelson.

7 0
2 years ago
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