Question

P3-6 (Algo) Analyzing the Effects of Transactions Using T-Accounts, Preparing an Income Statement, and Evaluating the Net Profit Margin Ratio LO3-4, 3-5, 3-6

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Following are account balances (in millions of dollars) from a recent StateEx annual report, followed by several typical transactions. Assume that the following are account balances on May 31 (end of the prior fiscal year):

Account	Balance			Account	Balance
Property and equipment (net)	$	18,694		Receivables	$	2,749
Retained earnings		14,406		Other current assets		1,119
Accounts payable		1,737		Cash		1,364
Prepaid expenses		348		Spare parts, supplies, and fuel		878
Accrued expenses payable		2,550		Other noncurrent liabilities		4,010
Long-term notes payable		1,970		Other current liabilities		2,419
Other noncurrent assets		3,272		Additional Paid-in Capital		1,327
Common stock ($0.10 par value)		5

These accounts are not necessarily in good order and have normal debit or credit balances. Assume the following transactions (in millions, except for par value) occurred the next fiscal year beginning June 1 (the current year):

1. Provided delivery service to customers, who paid $13,390 in cash and owed $41,504 on account.
2. Purchased new equipment costing $3,914; signed a long-term note.
3. Paid $12,664 cash to rent equipment and aircraft, with $6,736 for rent this year and the rest for rent next year.
4. Spent $1,344 cash to repair facilities and equipment during the year.
5. Collected $38,685 from customers on account.
6. Repaid $390 on a long-term note (ignore interest).
7. Issued 260 million additional shares of $0.10 par value stock for $40 (that’s $40 million).
8. Paid employees $15,276 for work during the year.
9. Purchased spare parts, supplies, and fuel for the aircraft and equipment for $13,764 cash.
10. Used $7,650 in spare parts, supplies, and fuel for the aircraft and equipment during the year.
11. Paid $1,264 on accounts payable.
12. Ordered $136 in spare parts and supplies.

P3-6 Part 2

2. Prepare T-accounts for the current year from the preceding list; enter the ending balances from May 31 as the respective beginning balances for June 1 of the current year. For each transaction, record the current year's transaction effects in the T-accounts. Label each using the letter of the transaction. (Enter your answers in millions, not in dollars.)

Answer 1