Vanishing Games Corporation (VGC) operates a massively multiplayer online game, charging players a monthly subscription of $12. At the start of January 2015, VGC’s income statement accounts had zero balances and its balance sheet account balances were as follows: Cash $ 1,590,000
Accounts Receivable 245,000
Supplies 17,800
Equipment 922,000
Land 1,250,000
Building 435,000
Accounts Payable 137,000
Unearned Revenue 140,000
Notes Payable (due 2018) 81,000
Common Stock 2,800,000
Retained Earnings 1,301,800
In addition to the above accounts, VGC’s chart of accounts includes the following: Service Revenue, Salaries and Wages Expense, Advertising Expense, and Utilities Expense.
1. Analyze the effect of the January transactions (shown below) on the accounting equation, and indicate the account, amount, and direction of the effect (+ for increase and − for decrease) of each transaction.(Enter any decreases to account balances with a minus sign.)
a. Received $65,250 cash from customers for subscriptions that had already been earned in 2014.
b. Received $215,000 cash from Electronic Arts, Inc. for service revenue earned in January.
c. Purchased 10 new computer servers for $34,600; paid $14,400 cash and signed a three-year note for the remainder owed.
d. Paid $12,600 for an Internet advertisement run on Yahoo! in January.
e. Sold 19,200 monthly subscriptions at $12 each for services provided during January. Half was collected in cash and half was sold on account.
f. Received an electric and gas utility bill for $5,250 for January utility services. The bill will be paid in February.
g. Paid $420,000 in wages to employees for work done in January.
h. Purchased $3,300 of supplies on account.
Paid $3,300 cash to the supplier in (h).
Prepare journal entries for the January transactions listed in part 1, using the letter of each transaction as a reference. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)
Create T-accounts, enter the beginning balances shown above, post the journal entries to the T-accounts, and show the unadjusted ending balances in the T-accounts.
Prepare an unadjusted trial balance as of January 31, 2015.
Prepare an Income Statement for the month ended January 31, 2015, using unadjusted balances from part 4
Calculate net profit margin, expressed as a percent

Explanation:

1 Journal Entries:

DateAccounts Title and ExplanationDebit$Credit $

a             Cash                                               65250  

              Service Revenue                                                65250

b             Cash                                               215000  

                 Accounts Receivable                                      215000

c              Office Equipment (computers)     34600  

               Cash                                                                   14400

               Note Payable                                                   20200

d           Advertisement expense                   12600  

             Cash                                                                    12600

e            Cash                                                115200  

             Accounts Receivable                115200  

             Service Revenue                                               230400

f             Utility expenses                               5250  

             Accounts Payable                                              5250

g            Wages                                            420000  

              Cash                                                                  420000

h            Supplies                                           3300  

             Accounts Payable                                              3300

i            Accounts Payable                           3300  

             Cash                                                                   3300

unadjusted trial balance as of January 31, 2015:

Account Title                     Debit $                            Credit $

Cash                                  1535150  

Accounts Receivable        145200  

Supplies                              21100  

Equipment                        956600  

Land                                1250000  

Building                           435000

Accounts Payable                                                         142250

Unearned Revenue                                                      140000

Notes Payable                                                              101200

Common Stock                                                            2800000

Retained Earnings                                                      1301800

Service Revenue                                                        295650

Advertisement                 12600  

Utilities                             5250  

Wages                              420000  

Total                                  4780900                         4780900

Income Statement for the month ended January 31, 2015:

Service Revenues $295650

Less: Expenses:

Wages 420000

Advertisement 12600

Utility expense 5250 437850

Net Income (Loss) ($142200)

January Income Statement is showing loss of 48.1%.