Week 2 Homework Exercises - Michael Garcia
E4-8
a. dr Supplies Expense (+E, SE)
750

cr Supplies (A)

750

b. dr Wages Expense (+E, SE)
3,700

cr Wages Payable (+L)

3,700

c. dr Unearned Revenue (L)
2,200

cr Rent Revenue (+R, +SE)

2,200

d. dr Depreciation Expense (+E, SE)
2,000

cr Accumulated Depreciation (+xA, A)

2,000

e. dr Insurance Expense (+E, SE)
750

cr Prepaid Insurance (A)

750

f. dr Accounts Receivable (+A)
750

cr Service Revenue (+R, +SE)

750

E4-13

Items
Net
Income

Total
Assets

Total Liabilities

Stockholders’ Equity
Amounts reported
$30,000

$90,000

$40,000

$50,000 Effect of depreciation (8,000)

(8,000)

(8,000) Effect of wages
(17,000)

17,000

(17,000) Effect of rent revenue 1,600

(1,600)

1,600
Adjusted balances
6,600

82,000

55,400

26,600 Effect of income taxes
(1,980)

1,980

(1,980)
Correct amounts
$ 4,620

$82,000

$57,380

$24,620

E4-16
1.
dr Insurance Expense (+E, SE) 5 cr Prepaid Insurance (A) 5

dr Depreciation Expense (+E, SE) 4 cr Accumulated Depreciation (+xA, A) 4

dr Wages Expense (+E, SE) 7 cr Wages Payable (+L) 7

dr Income Tax Expense (+E, SE) 9 cr Income Tax Payable (+L) 9

2.
+ Cash (A) 

Accounts + Receivable(A) 

Prepaid
+ Insurance (A) 
Bal. 38

Bal. 9

Bal. 6 a 5
Bal. 38

Bal. 9

Bal. 1

+ Equipment (A) 

Accumulated
 Depreciation (xA) +

Accounts
 Payable (L) +
Bal 80

Bal. 0

Bal. 9

b 4

Bal. 80

Bal. 4

Bal. 9

Wages  Payable (L) +

Income Tax
 Payable (L) +

Contributed
 Capital (SE) +

Bal. 0

Bal. 0

Bal. 76

c 7

d 9

Bal. 7

Bal. 9

Bal. 76

Retained
 Earnings (SE) +

Sales
 Revenue (R) +

Administrative
+ Expenses (E) 

Bal. 4

Bal. 80

Bal. 26

Bal. 4

Bal. 80

Bal. 26

Req. 2 (continued)

Wages
+ Expense (E) 

Depreciation + Expense (E) 

Insurance
+ Expense (E) 
Bal. 10

Bal. 0

Bal. 0

c 7

b 4

a 5

Bal. 17

Bal. 4

Bal. 5

Income Tax
+ Expense (E) 

Bal. 0

d 9

Bal. 9

Mint ClEANING INC.
Adjusted Trial Balance
December 31, 2013
(in thousands of dollars)

Account Titles
Debit
Credit
Cash
$ 38

Accounts Receivable
9

Prepaid Insurance
1

Equipment
80

Accumulated Depreciation

$ 4
Accounts Payable

9
Wages Payable

7
Income Tax Payable

9
Contributed Capital

76
Retained Earnings

4
Sales Revenue

80
Administrative Expenses
26

Wages Expense
17

Depreciation Expense
4

Insurance Expense
5

Income Tax Expense
9

Totals
$ 189
$ 189

Req. 3

Without adjusting journal entries, net income would have been overstated by $25 (because expenses for $5 + 4 + 7 + 9 = 25 would not have been recorded).

E5-8

Req. 1

2010
Asset turnover
=
Total Revenue
=
$4,473
=
1.94

Average Total Assets

($2,175 + $2,429)/2

2009
Asset turnover
=
Total Revenue
=
$4,276
=
1.94

Average Total Assets

($2,429 + $1,990)/2

2010
Net profit margin
=
Net Income
=
$206
=
.046
=
4.6%

Total Revenue

$4,473

2009
Net profit margin
=
Net Income
=
$205
=
.048
=
4.8%

Total Revenue

$4,276

Req. 2

The asset turnover ratio determines how well assets are used to generate revenue. This analysis indicates that the company has maintained its efficiency in using assets to generate revenue at 1.94 in both 2010 and 2009.

Net profit margin measures a company’s ability to generate profits from each dollar of revenue. This analysis indicates that the company’s performance in this regard has declined from 4.8% in 2009 to 4.6% in 2010.

Analysts would be concerned with the inability to