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P3-6 (Algo) Analyzing the Effects of Transactions Using T-Accounts, Preparing an Income Statement, and Evaluating the...

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

[The following information applies to the questions displayed below.]

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 1

Required:

1. Prepare journal entries for each transaction. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter amounts in millions, not dollars.)

Solutions

Expert Solution

1. Cash                                            13390

   Debtors                                         41504

        To Service for customers                            54894

(which amount is received in cash that will be in cash and which is still debotrs raised that will be shown in debtors account)

2. Equipment                                    3914

       To Crediotrs    3914

(being Equipment Purchased against long term credit note means no cash is paid out so there is creditors account opened)

3. Rent for Equipment and Aircraft                       6736

   Prepaid Rent                                                5928

To Cash    12664

(cash paid so that will be credited and which amount belong to this year that will be debited to this year and balance amount will be debited to Prepaid Insurance account , amount of prepaid insurance is 12664-6736= 5928. because the amount is paid in advance so that is prepaid amount)

4. Repair                                                      1344

      To cash a/c                                                      1344

(amount spent cash for repairs so cash goes out so that will be credited and expenses are debited.)

5. cash                                                      38685

       To Customers                                                38685

(amount recd. on account thus that amount will be credited to customers as cumtors balance will be reduced, cash comes so that will be debited. here not mentioned customer name if that is mentione then we will put the particular customer name )

6. Customers 390

   To cash          390

(being amount paid on long term note)

7. cash                                                    40million

      To Share capital                                           40million

(being share capital ssued )

8. Employees                                       15276

        To Cash                                                     15276

( being payment paid to employees)

9. Spare parts a/c                                  13764

        To Cash                                                             13764

( being amount paid and purchases made particular for asset aircraft and equipment that amount will be added to asset because spareparts are purchased for fixed assets. thus this amount will be added in that in Balance Sheet)

10. Profit and Loss a/c                      7650

       To Spare parts                                         7650

(being spare part used that will be shownin profit and loss account)

11.Accounts Payable                                  1264

        To Cash                                     1264

(being Accounts payable having credit balance now we have paid so their's balance will be reduce and so that are debited and cash is paid out thus that will be credited )

12. Purcahse Order                                        136

         To Accounts Receivable                                          136


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