Accounting Quiz

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Quiz 2 Kaylee’s Sweets

Kaylee James opened Kaylee’s Sweets on January 1, 2016. The shop specializes in a selection of gourmet chocolate candies and a line of gourmet ice cream. You have been hired as manager. Your duties include maintaining the store’s financial records. The following transactions occurred in January, the first month of operations.

a. Received four shareholders’ contributions totaling $30,200 cash to form the corporation; issued 400 shares of $0.10 par value common stock.

b. Paid three months’ rent for the store at $1,750 per month (two months are prepaid).

c. Purchased and received candy for $5,000 on account, due in 60 days.

d. Purchased supplies for $1,660 cash.

e. Negotiated and signed a two-year $13,000 loan at the bank, receiving cash at the time.

f. Used the money from (e) to purchase a computer for $3,750; used the balance for furniture and fixtures for the store.

g. Placed a grand opening advertisement in the local paper for $500 cash; the ad ran in the current month.

h. Made sales the first two weeks totaling $3,500; $2,675 was in cash and the rest on accounts receivable. The cost of the candy sold was $1,800.

i. Made a $850 payment on accounts payable.

j. Incurred and paid employee wages of $1,500.

k. Collected accounts receivable of $600 from customers.

l. Made a repair to one of the display cases for $700 cash.

m.

Made cash sales of $1,400 for the rest of the month. The cost of the candy sold was $500.

Required

1. Record journal entries for each of the transactions.

2. Prepare an income statement at the end of the first month of operations ended January 31.

3. Prepare a balance sheet as of January 31.

4. Write a memo to Kaylee offering your opinion on the results of operations during the first month of business.

5. After three years in business the following data was computed. Based on this information provide a report to Kaylee on the performance of the store.

Year

2016

2017

2018

Total Assets

$52,500

$58,500

$66,000

Total Liabilities

18,500

22,000

27,500

Total Equity

34,000

36,500

38,500

Sales Revenue

55,000

82,500

93,500

Net Income

4,400

11,000

22,000

Quiz 2

K

aylee’s Sweets

Kaylee

J

ames opened

Kaylee’s Sweets

on January 1, 2016. The shop specializes in a selection of gourmet chocolate candies and a line of gourmet ice cream. You have been hired as manager. Your duties include maintaining the store’s financial records. The following transactions occurred in January, the first month of operations.

a. Received four shareholders’ contributions totaling $30,200 cash to form the corporation; issued 400 shares of $0.10 par value common stock.

b. Paid three months’ rent for the store at $1,750 per month (two months are prepaid).

c. Purchased and received candy for $6,000 on account, due in 60 days.

d. Purchased supplies for $1,560 cash.

e. Negotiated and signed a two-year $

11,000

loan at the bank, receiving cash at the time.

f. Used the money from (e) to purchase a computer for $2,750; used the balance for furniture and fixtures for the store.

g. Placed a grand opening advertisement in the local paper for $400 cash; the ad ran in the current month.

h.

M

ade sales the first two weeks totaling $3,500; $2,675 was in cash and the rest on accounts receivable. The cost of the candy sold was $1,600.

i. Made a $550 payment on accounts payable.

j.

I

ncurred and paid employee wages of $1,300.

k.

C

ollected accounts receivable of $600 from customers.

l. Made a repair to one of the display cases for $400 cash.

m. Made cash sales of $1,200 for the rest of the month. The cost of the candy sold was $600.

Required

1. Record journal entries for each of the transactions.

$5,250.00

$6,000.00

$1,560.00

Cash

$11,000.00

Cash

$11,000.00

Cash

$400.00

Cash

$1,600.00

$550.00

$1,300.00

Accounts Receivable

$600.00

$400.00

Cash

$400.00

$1,200.00

$600.00

Inventory of candy

$600.00

Kaylee’s Sweets Journal E ntry (2016)
D ate	Description	Debit	Credit
A	Cash Contributions	$30,200.00
Common Stock (400x .10)		$40.00
Additional Paid in Capital (being stock issued)		$30,160.00
B		Prepaid Rent		$5,250.00
Cash (rent paid in advance)
C	Inventory (Candy)		$6,000.00
D		Supplies			$1,560.00
				Cash
E				$11,000.00
Bank L oan
F		Computer		$2,750.00
Furniture & Fixtures		$8,250.00
G	Advertisement (Local Paper)						$400.00
H	$2,675.00
	Accounts Receivable	$850.00
Sales Total		$3,500.00
Candy Costs		$1,600.00
	Inventory of candy
I	Accounts Payable		$550.00
Cash (paid)
J
	Salaries & Wages			$1,300.00
		Cash
K	Cash (from Customers)				$600.00
L
	Repairs
M	Cash Sales		$1,200.00
	Sales
Goods Sold

2. Prepare an income statement at the end of the first month of operations ended January 31.

Kaylee’s Sweets

Income Statement- January 2016

Particulars

Amount

Amount

Sales

$4,700.00

Cost of Goods Sold

$2,200.00

Net sales

$2,500.00

Less: Expenses

Rent

$1,750.00

Advertising Expenses

$400.00

Repairs

$400.00

Salaries & Wages

$1,300.00

Total

$3,850.00

Net Profit

$-1,350

3. Prepare a balance sheet as of January 31.

Kaylee’s Sweets

Balance Sheet at January 31, 2016

Amount in $

Cash

$11,000.00

Supplies

$1,560.00

Prepaid Rent

$3,500.00

$40.00

$30,160.00

Computer

$2,750.00

$8,250.00

Assets		Amount in $	Liabilities
Current Assets	Current Liabilities
$25,215.00	Accounts Payable	$5,450.00
Accounts Receivable	$225.00	Bank Loan
Total Current Liabilities	$16,450.00
Inventory	$3,800.00
Stock Holder’s Equity
Total Current Assets	$34,300.00	Common Stock
Fixed Assets	Additional Paid in Capital
Retained Earnings	$-1,350.00
Furnitures and Fixtures	Total Stock Holder’s Equity	$28,850.00
Total Fixed Assets	$11,000.00
	Total Assets	$45,300.00		Total Liabilities	$45,300

4. Write a short memo to Kaylee offering your opinion on the results of operations during the first month of business.

In the first month of business, Kaylee has a loss of $1,350, which is due to indirect expenses like rent, utility, employee salaries, furniture and other costs. If indirect expenses can be lessened, the profits will increase for the business.

5. After three years in business the following data was computed. Based on this information provide a report to Kaylee on the performance of the store.

Total Assets

Total Liabilities

22,000

Year	2016	2017	2018
$52,500	$58,500	$66,000
18,500		22,000	27,500
Total Equity	34,000	36,500	38,500
Sales Revenue	55,000	82,500	93,500
Net Income	4,400	11,000

Net income is what is remaining after subtracting all costs. Using net income to assess how the business is performing, Kaylee’s Sweets is performing well and gaining profitability. Kaylee’s Sweets also has more assets than liabilities for each year, which is a good sign of performance. Overall, Kaylee’s Sweets is performing well.