Concept explainers
Transactions; financial statements
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 at wholesale rates. The assets, liabilities, and common stock of the business on July 1, 2018, are as follows: Cash, $45,000; Accounts Receivable, $93,000; Supplies, $7,000; Land, $75,000; Accounts Payable, $40,000; Common Stock, $60,000. Business transactions during July are summarized as follows:
- A. Joel Palk invested additional cash in exchange for common stock 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 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. Paid dividends, $ 12,000.
Instructions
1. Determine the amount of
2. State the assets, liabilities, and stockholders’ equity as of July 1 in equation form similar to that shown in this chapter. 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 retained earnings statement for July, and a balance sheet as of July 31.
4. (Optional) Prepare a statement of
a)
Accounting equation: Accounting equation is an accounting tool expressed in the form of equation, by creating a relationship between the resources or assets of a company, and claims on the resources by the creditors and the owners. Accounting equation is expressed as shown below:
Assets = Liabilities + Shareholders Equity
The retained earnings for DD Cleaners as on July 1, 2018.
Explanation of Solution
Calculate the retained earnings for DD Cleaners as on July 1, 2018.
The retained earnings, for DD Cleaners as on July 1, 2018 are $120,000.
b)
To Indicate: The effect of each given transaction of DD Cleaners on the accounting equation.
Explanation of Solution
Business transaction: Business transaction is a record of any economic activity, resulting in the change in the value of the assets, the liabilities, and the Shareholder’s equities, of a business. Business transaction is also referred to as financial transaction.
Indicate the effect of the given transactions of DD Cleaners.
(Figure – 1)
c)
To Prepare: The financial statements for DD Cleaners for the month ended July 31, 2018.
Explanation of Solution
Financial statements: Financial statements refer to those statements, which are prepared by the Company according to particular formats in accounting to show its financial position.
Financial statements include the following statements:
Income statement: Income statement is a financial statement that shows the net income or net loss by deducting the expenses from the revenues and vice versa.
Prepare the income statement of DD Cleaners for the month ended July 31, 2018.
DD Cleaners | ||
Income Statement | ||
For the month ended July 31, 2018 | ||
Particulars | Amount ($) | Amount ($) |
Revenues | ||
Dry cleaning revenue | $116,875 | |
Expenses | ||
Dry Cleaning expense | $29,500 | |
Wages expense | $7,500 | |
Rent expense | $6,000 | |
Supplies expense | $3,600 | |
Truck expense | $2,500 | |
Utilities expense | $1,300 | |
Miscellaneous expense | $2,700 | |
Total expenses | $53,100 | |
Net income | $63,775 |
Table (1)
Hence, the net income of DD Cleaners for the month ended July 31, 2018 is $63,775.
Statement of Retained Earnings: Statement of retained earnings shows, the changes in the retained earnings, and the income left in the company after payment of the dividends, for the accounting period.
Prepare the statement of Retained earnings for DD Cleaners for the month ended July 31, 2018.
DD Cleaners | ||
Statement of Retained Earnings | ||
For the month ended July 31, 2018 | ||
Particulars | Amount ($) | Amount ($) |
Retained earnings, July 1, 2018 | $120,000 | |
Net income for the year | $63,775 | |
Deduct - Dividends | $12,000 | |
Increase in Retained earnings | $51,775 | |
Retained earnings, April 30, 2018 | $171,775 |
Table (2)
Hence, the retained earnings of DD Cleaners for the month ended July 31, 2018 are $171,775.
Balance Sheet: Balance Sheet summarizes the assets, the liabilities, and the Shareholder’s equity of a company at a given date. It is also known as the statement of financial status of the business.
Prepare the balance sheet of DD Cleaners for the month ended July 31, 2018.
DD Cleaners | ||
Balance Sheet | ||
July 31, 2018 | ||
Particulars | Amount ($) | Amount ($) |
Assets | ||
Current Assets | ||
Cash | $95,325 | |
Accounts receivable | $89,750 | |
Supplies | $5,900 | |
Land | $125,000 | |
Total current assets | $315,975 | |
Liabilities and Stockholders’ Equity | ||
Liabilities | ||
Accounts payable | $49,200 | |
Owner's equity | ||
Common Stock | $95,000 | |
Retained earnings | $171,775 | |
Total liabilities and stockholders’ equity | $315,975 |
Table (3)
The balance sheet of DD Cleaners shows asset balance of $315,975 which is same as the balance of liabilities and owner's equity.
d)
To Prepare: The statement of cash flow for DD Cleaners for the month ended July 31, 2018.
Answer to Problem 1.5APR
Statement of cash flows: This statement reports all the cash transactions which are responsible for inflow and outflow of cash, and result of these transactions is reported as ending balance of cash at the end of reported period.
Prepare the statement of cash flows for DD Cleaners for the month ended July 31, 2018.
DD Cleaners | ||
Statement of Cash Flows | ||
For the month ended July 31, 2018 | ||
Particulars | Amount ($) | Amount ($) |
Cash flows from operating activities: | ||
Cash receipts from customers | $120,125 | |
Cash payments for expenses (1) | $20,000 | |
Payments to creditors | $22,800 | $42,800 |
Net cash flow used for operating activities | $77,325 | |
Cash flows from investing activities: | ||
Cash payment for purchase of land | (-) $50,000 | |
Cash flows from financing activities: | ||
Cash receipt of owner’s investment | $35,000 | |
Deduct - Withdrawals | (-) $12,000 | |
Net cash flow from financing activities | $23,000 | |
Net Increase in cash during July | $50,325 | |
Cash Balance on July 1, 2018 | $45,000 | |
Cash Balance on July 31, 2018 | $95,325 |
Table (4)
The statement of cash flows for DD Cleaners for the month ended July 31, 2018, shows cash balance of $95,325 on July 31, 2018
Explanation of Solution
Working Note:
Calculate the expenses made through cash payments.
Want to see more full solutions like this?
Chapter 1 Solutions
Corporate Financial Accounting
- Kindly answer in good accounting form. Also show journal entries. On January 01, 2020 Kitkat Company, Inc. establishes a branch in Buang.During the year, Kitkat Inc. transfers cash and merchandise to the branchworth P15,000 and P45,000 respectively. Freight was paid by the homeoffice worth P1,500 included in the cost of merchandise. The home officealso incurred P5,700 expenses of which 30 percent was allocated to thebranch. On December 31, 2020, the branch incurred a loss of P4,000. What is the balance of the branch account as per home office booksarrow_forwardPresented below is the balance sheet of Sheffield Corporation for the current year, 2025. Current assets Investments 643,870 Property, plant, and equipment 1,723,870 Intangible assets 305,000 1. 2. 3. The following information is presented. The current assets section includes cash $153,870, accounts receivable $173,870 less $13,870 for allowance for doubtful accounts, inventories $183,870, and unearned rent revenue $8,870. Inventory is stated on the lower-of-FIFO-cost-or-net realizable value. 4. 5. Sheffield Corporation Balance Sheet December 31, 2025 $ 488,870 6. 7. $3,161,610 Current liabilities Long-term liabilities Stockholders' equity $ 383,870 1,003,870 1,773,870 $3,161,610 The investments section includes the cash surrender value of a life insurance contract $43,870; investments in common stock, short-term $83,870 and long-term $273,870; and bond sinking fund $242,260. The cost and fair value of investments in common stock are the same. Property, plant, and equipment includes…arrow_forwardA property company received cash for rent totalling $838,600 in the year ended 31 December 20X6.Figures for rent in advance and in arrears at the beginning and end of the year were:31 December 20X5 31 December 20X6$ $Rent received in advance 102,600 88,700Rent in arrears (all subsequently received) 42,300 48,400What amount should appear in the company's statement of profit or loss for the year ended 31December 20X6 for rental income?arrow_forward
- The following information (in $ millions) comes from the Annual Report of Saratoga Springs Company for the year ending 12/31/2024: Year ended 12/31/2024 $ 8,139 4,957 2,099 Net sales Cost of goods sold Selling and administrative expense Interest expense Income before taxes Net income Cash and cash equivalents Receivables, net Inventories Land, buildings and equipment at cost, net Total assets Total current liabilities Long-term debt Total liabilities Total stockholders' equity 606 477 648 Profit margin on sales 12/31/2024 $ 1,165 1,200. 1,245 13,690 $ 17,300 $ 5,937 5,781 $ 11,718 $5,582 Required: Compute the profit margin on sales for 2024. Note: Round your answer to 1 decimal place, e.g., 0.1234 as 12.3%. 12/31/2023 $ 83 854 709 4,034 $ 5,680 $ 2,399 2,411 $ 4,810 $ 870arrow_forwardRequired: Compute the asset turnover ratio for 2021. (Re Asset turnover ratioarrow_forwardUse the information provided for Harding Company to answer the question that follow. Harding Company Accounts payable $38,916 Accounts receivable 74,415 Accrued liabilities 6,825 Cash 21,504 Intangible assets 44,690 Inventory 86,306 Long-term investments 96,392 Long-term liabilities 73,076 Notes payable (short-term) 27,058 Property, plant, and equipment 640,527 Prepaid expenses 1,874 Temporary investments 39,418 Based on the data for Harding Company, what is the amount of working capital? Oa. $1,005,126 Ob. $638,653 c. $150,718 Od. $223,517arrow_forward
- Use the following information from Dubuque Company's financial statements. From the Dec.31, 2018 balance sheet, changes from prior year: Accounts Receivable $8,600 Inventory 3,400 Prepaid Insurance (2,200) Accounts Payable (4,000) Sales Tax Payable 1,900 From the 2018 Income Statement: Gain From Sale of Investments $12,000 Depreciation Expense 26,500 Net Income 79,300 Prepare the operating activities section of the statement of cash flows (indirect method) for the year 2018. Use the minus sign to indicate cash outflows, a decrease in cash or cash payments. Dubuque Company Partial Statement of Cash Flows (Indirect Method) For the Year Ended December 31, 2018 Operating Activities: Net Income Depreciation Expense Gain From Sale of Investments Accounts Receivable, Inventory %24arrow_forwardDirections. Read and analyse the given data. Answer the questions below on a separate sheet of paper. The January 31. 202x Statement of Financial Position of Shelpat Corporation follows: Cash 8,000 Accounts receivable (net of allowance for uncollectible Accounts of P2,000) 38,000 16,000 Inventory Property, plant and equipment (net of allowance for Accumulated depreciation of P60,000) 40 000 P. 102,000 Total Assets Additional information: • Sales are budgeted as follows: February P110,000 120 000 March • Collections are expected to be 60% in the month of sale. 38% the next month and 2 % uncollectible. • The gross margin is 25% of sales. Purchases each month are 75% of the next month's projected sales. The purchases are paid in full the following month. • Other expenses for each month, paid in cash, are expected to be P16,500. Depreciation each month is P5,000. 1. What are the budgeted cash collections for February 202x? P101,800 P104,000 P63,800 P66,000 a. с. b. d. 2. What is the…arrow_forwardPermai Bhd is one of the main manufacturers and suppliers of industrial chemical productsand equipment that had been incorporated in 2010. The following is the carrying amount ofasset and liabilities of the company as at 31 December 2019:Carrying amount (RM)Property, plant and equipment 249,200Intangible assets 138,000Investment in fixed deposit 107,000Account receivable 96,700Interest receivable 10,700Inventory 206,000Bank 129,000Trade payables 197,000Accrued interest 15,600Penalties payable 15,500Unearned revenue 45,30010% Loan 156,000 Additional information:1. The cost of the property, plant and equipment is RM356,000 when it was acquired in2015. Depreciation expense for property, plant and equipment is calculated at the rateof 10% per year and capital allowance is 20% per year for the first three years fromthe cost of the assets.2. The intangible assets consist of development expenditure of Permai Bhd’s R&D projectincurred during the year that was qualified to be capitalised.3.…arrow_forward
- Use the information provided for Harding Company to answer the question that follow. Harding Company Accounts payable $34,251 Accounts receivable 69,478 Accrued liabilities 6,529 Cash 23,300 Intangible assets 36,101 Inventory 89,377 Long-term investments 104,908 Long-term liabilities 70,482 Notes payable (short-term) 21,433 Property, plant, and equipment 695,698 Prepaid expenses 1,772 Temporary investments 39,777 Based on the data for Harding Company, what is the amount of working capital? a. $223,704 b. $1,060,411 c. $693,926 d. $161,491arrow_forwardUse the information provided below to prepare the Statement of Financial Position of Lynwood Limited as at 31 August 2023. The notes to the financial statements are not required. Show all workings. INFORMATION The following balances were obtained from the accounting records of Lynwood Limited after some of the adjustments and closing transfers were completed on 31 August 2023, the end of the financial year. R Inventory 315 000 Accounts receivable 92 000 Loan: Lindor Bank (19.5%) 200 000 Equipment (Cost) 1 980 000 Accumulated depreciation on equipment? Cash float 13 500 Accounts payable 211 000 Provision for bad debts? Accrued income? Ordinary share capital 1 161 000 Retained income 540 000 Company tax payable 18 000 Bank (DR) 99 000 Accrued expenses? Dividends payable 161 000 The following adjustments must be made: The account of a debtor who owed R2 000 must be written off. The provision for bad debts must be adjusted to 5% of debtors. The rent income account reflected a total of R99…arrow_forwardCarmela Company, as of December 31, 2021 provided the following balances: Cash, net of a P7,000 overdraft 80,000 Receivable, net of customer credit balances totaling P6,000 30,000 Inventory (P20,000 of which are held on consignment) 60,000 Prepayments 10,000 Property, plant and equipment, net of accumulated depreciation of P15,000 90,000 Accounts payable net of debit balances in suppliers' accounts of P3,000 45,000 Notes payable - bank, due on July 2022 25,000 Income tax payable 15,000 Total current assets reported in the December 31, 2021 balance sheet isarrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning