Question

1) Before month-end adjustments are made, The March 31 trial balance of Whitewater Excursions contains revenue of $27,900 and expenses of $17,340. Adjustments are necessary for the following items:

• Depreciation for March, $1,440.
• Fees earned in March, not yet billed to customers, $1,950.

Calculate Net Income for March.

2) If a company had $15,000 in net income for the year, and its revenues were $300,000 for the same year, what is its profit margin, or net income percentage? Express your response as a number; for example, if you calculate net income percentage as 20%, enter 20 in the response box.

3)

Calculate the current ratio for Purple Company based on the following information. Round your answer to one decimal place.

Current assets	$75,000	Current liabilities	$50,000
Investments	30,000	Long-term liabilities	60,000
Plant assets	300,000	Common stock	295,000

PART B

Use the information below to answer the following 4 questions.

Blue Company prepares monthly financial statements. Below are listed some selected accounts and their balances in the December 31 trial balance before any adjustments have been made for the month of December.

Accounts Receivable _________$2,700 debit balance

Prepaid Insurance _______________400 debit balance

Unearned Fee Revenue _______1,200 credit balance

Interest Payable ________________300 credit balance

An analysis of the account balances by the company's accountant provided the following additional information.

1. Revenue that has been earned, but not yet billed or recorded amounts to $725.

2. A six month insurance policy was purchased on October 1 for $600.

3. Blue Company signed a $36,000 note payable on October 1. The note is due in six months at an interest rate of 5%. The note and interest are payable on March 1 of next year.

4. The amount of fees previously received in advance that remain unearned at December 31 is $500.

A) Prepare the journal entry to record the adjustment needed due to item 1 - revenue earned but not yet billed. Include an explanation.

B) Prepare the journal entry to record the adjustment needed due to item 2 - prepaid insurance. Include an explanation.

C) Prepare the journal entry to record the adjustment needed due to item 3 - interest on the note payable. Include an explanation.

D) Prepare the journal entry to record the adjustment needed due to item 4 - cash previously received and revenue earned this month. Include an explanation.

Answer 1

1.

Calculation of Net Income
Particulars	Amount
Revenue	27900
add: Accrued Income	1950
Less : Expenses	17340
Less: Depreciation	1440
Net Income	11070

2. Net Profit Margin = Net Income / Revenue * 100

= 15000/300000 *100

= 5

3. Current Ratio = Current Assets / Current Liabilities

= 75000/50000

= 1.5: 1

Part B

A. Accounts Receivable A/c Dr. 725

To Revenue A/c 725

( Being transaction recorded, earlier earned but not recorded yet)

B. Insurance A/c Dr. 100

To Prepaid Insurance 100

(Being Insurance premium adjusted for december month paid in October (600/6 = 100)

C. Interest A/c Dr. 150

To Interest Payable A/c 150

( Being interest accrued for december month $150(36000*5%*1/12) )

D. Unearned Fee revenue A/c Dr 500

To Revenue A/c 500

( Being revenue earned in december month but fee received in advance)