Question

Feb. 1 Paid $500 for rent of hangar space in February.Feb. 4 Received customer payment of $1,510 to ship several items to Philadelphia next month.Feb. 7 Flew cargo from Denver to Dallas; the customer paid in full ($1,410 cash).Feb. 10 Incurred and paid $1,500 in pilot wages for flying in February.Feb. 14 Paid $116 for an advertisement run in the local paper on February 14.Feb. 18 Flew cargo for two customers from Dallas to Albuquerque for $2,130; one customer paid $860 cash and the other asked to be billed $1,270.Feb. 25 Purchased on account $1,755 in supplies for future use on the planes.Required:Prepare accrual basis journal entries for each transaction.Calculate the company’s preliminary net income.Calculate the company’s net profit margin expressed as a percent.

Answer 1

Answer:

1. Feb-01

Dr Rent expense 500

Cr Cash 500

Feb-04

Dr Cash 1510

Cr Unearned freight revenue 1510

Feb-07

Dr Cash 1410

Cr Freight revenue 1410

Feb-10

Dr Wages and salaries expense 1500

Cr Cash 1500

Feb-14

Dr Advertisement expenses 116

Cr Cash 1165

Feb-18

Dr Cash 860

Cr Freight revenue 860

Dr Accounts receivable 2130

Cr Freight revenue 2130

Feb-25

Dr Supplies 1755

Cr Accounts payable 1755

2. $2,284

3. 51.90%

Explanation:

1. Preparation of accrual basis journal entries for each transaction

Feb-01

Dr Rent expense 500

Cr Cash 500

Feb-04

Dr Cash 1510

Cr Unearned freight revenue 1510

Feb-07

Dr Cash 1410

Cr Freight revenue 1410

Feb-10

Dr Wages and salaries expense 1500

Cr Cash 1500

Feb-14

Dr Advertisement expenses 116

Cr Cash 1165

Feb-18

Dr Cash 860

Cr Freight revenue 860

Dr Accounts receivable 2130

Cr Freight revenue 2130

Feb-25

Dr Supplies 1755

Cr Accounts payable 1755

2.Calculation for the company’s preliminary net income.

Freight revenue 4400

(1410+860+2130)

Less Expenses 2116

(500+1500+116)

Preliminary Net income $2,284

Therefore the company’s preliminary net income will be $2,284

3. Calculation for the company’s net profit margin expressed as a percent

Net profit margin = 2,284/4,400

Net profit margin=0.5190*100

Net profit margin=51.90%

Therefore the company’s net profit margin expressed as a percent will be 51.90%