D’Lite Dry Cleaners is owned and operated by Joel Palk. A building and equipment are currently being rented, pending expansion to new facilities. The actual work of dry cleaning is done by another company for a fee. The assets and liabilities of the business on July 1, 2019, are as follows: Cash, $45,000; Accounts Receivable, $93,000; Supplies, $7,000; Land, $75,000; Accounts Payable, $40,000. Business transactions during July are summarized as follows:
a. Joel Palk invested additional cash in the business with a deposit of $35,000 in the business bank account.
b. Paid $50,000 for the purchase of land adjacent to land currently owned by D’Lite Dry Cleaners as a future building site.
c. Received cash from cash customers for dry cleaning revenue, $32,125.
d. Paid rent for the month, $6,000.
e. Purchased supplies on account, $2,500.
f. Paid creditors on account, $22,800.
g. Charged customers for dry cleaning revenue on account, $84,750.
h. Received monthly invoice for dry cleaning expense for July (to be paid on August 10), $29,500.
i. Paid the following: wages expense, $7,500; truck expense, $2,500; utilities expense, $1,300; miscellaneous expense, $2,700.
j. Received cash from customers on account, $88,000.
k. Determined that the cost of supplies on hand was $5,900; therefore, the cost of supplies used during the month was $3,600.
l. Withdrew $12,000 cash for personal use.
Instructions
1. Determine the amount of Joel Palk’s capital as of July 1 of the current year.
2. State the assets, liabilities, and owner’s equity as of July 1 in equation form similar to that shown in Exhibit 5. In tabular form below the equation, indicate increases and decreases resulting from each transaction and the new balances after each transaction.
3. Prepare an income statement for July, a statement of owner’s equity for July, and a balance sheet as of July 31.
4. (Optional) Prepare a statement of cash flows for July.
Answer:
1.= +
Cash + + + = +
$45,000 + + + = +
= +
Supplies Land
$7,000
$220,000
$40,000
$40,000
Joel Palk, Capital
1.= +
Cash + + + = +
$45,000 + + + = +
= +
= Joel Palk, Capital
2.= +
+ + + = + –
Bal. 45,000 93,000 7,000 75,000 40,000 180,000
(a) + 35,000+ 35,000
Bal. 80,000 93,000 7,000 75,000 40,000 215,000
(b) – 50,000+ 50,000
Bal. 30,000 93,000 7,000 125,000 40,000 215,000
(c) + 32,125
Bal. 62,125 93,000 7,000 125,000 40,000 215,000
(d) – 6,000
Bal. 56,125 93,000 7,000 125,000 40,000 215,000
(e) + 2,500 + 2,500
Bal. 56,125 93,000 9,500 125,000 42,500 215,000
(f) – 22,800– 22,800
Bal. 33,325 93,000 9,500 125,000 19,700 215,000
(g) + 84,750
Bal. 33,325 177,750 9,500 125,000 19,700 215,000
(h) + 29,500
Bal. 33,325 177,750 9,500 125,000 49,200 215,000
(i) – 14,000
Bal. 19,325 177,750 9,500 125,000 49,200 215,000
(j) + 88,000 – 88,000
Bal. 107,325 89,750 9,500 125,000 49,200 215,000
(k) – 3,600
Bal. 107,325 89,750 5,900 125,000 49,200 215,000
(l) – 12,000– 12,000
Bal. 95,325 89,750 5,900 125,000 49,200 215,000 – 12,000
+ – – – – – – –
Bal.
(a)
Bal.
(b)
Bal.
(c) + 32,125
Bal. 32,125
(d)– 6,000
Bal. 32,125 – 6,000
(e)
Bal. 32,125 – 6,000
(f)
Bal. 32,125 – 6,000
(g) + 84,750
Bal. 116,875 – 6,000
(h) – 29,500
Bal. 116,875 – 29,500 – 6,000
(i)– 7,500 – 2,500 – 1,300 – 2,700
Bal. 116,875 – 29,500 – 7,500 – 6,000 – 2,500 – 1,300 – 2,700
(j)
Bal. 116,875 – 29,500 – 7,500 – 6,000 – 2,500 – 1,300 – 2,700
(k)– 3,600
Bal. 116,875 – 29,500 – 7,500 – 6,000 – 3,600 – 2,500 – 1,300 – 2,700
(l)
Bal. 116,875 – 29,500 – 7,500 – 6,000 – 3,600 – 2,500 – 1,300 – 2,700
3.
Dry cleaning revenue$116,875
Expenses:
Dry cleaning expense$29,500
Wages expense7,500
Rent expense6,000
Supplies expense3,600
Truck expense2,500
Utilities expense1,300
Miscellaneous expense2,700
Total expenses53,100
Net income$ 63,775
Joel Palk, capital, July 1, 2019$180,000
Additional investment during July $ 35,000
Net income for July63,775
Withdrawals(12,000)
Increase in owner’s equity86,775
Joel Palk, capital, July 31, 2019$266,775
Cash$ 95,325
Accounts receivable89,750
Supplies5,900
Land125,000
Total assets$315,975
Accounts payable$ 49,200
Joel Palk, capital266,775
Total liabilities and owner’s equity$315,975
4. (Optional)
Cash flows from operating activities:
Cash receipts from customers* $120,125
Cash payments for expenses and payments to
creditors**(42,800)
Net cash flow from operating activities$ 77,325
Cash flows used for investing activities:
Cash payment for purchase of land(50,000)
Cash flows from financing activities:
Cash receipt of owner’s investment $ 35,000
Cash withdrawal by owner(12,000)
Net cash flow from financing activities23,000
Net increase in cash during July$ 50,325
Cash balance, July 1, 201945,000
Cash balance, July 31, 2019$ 95,325
* $32,125 + $88,000; these amounts are taken from the cash column of the spreadsheet in Part 2.
** $6,000 + $22,800 + $14,000; these amounts are taken from the cash column of the spreadsheet
in Part 2.