Question

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 and the liabilities of the business on July 1, 2014, 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.Instructions1. 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 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 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

Answer:

1) equity = assets - liabilities

equity = $45,000 + $93,000 + $7,000 + $75,000 - $40,000 = $180,000

2) Since there is not enough room here, I used an excel spreadsheet to prepare the accounting equation.

     

3) D’Lite Dry Cleaners

Income Statement

For the month ended July 31, 202x

Revenues                                                       $116,875

Expenses:

• Dry cleaning expense $29,500
• Rent expense $6,000
• Wages expense $7,500
• Truck expense $2,500
• Supplies expense $3,600
• Utilities expense $1,300
• Miscellaneous expense $2,700           ($53,100)

Net income                                                      $63,775

D’Lite Dry Cleaners

Balance Sheet

For the month ended July 31, 202x

Assets:

Cash $95,325

Accounts receivable $89,750

Supplies $5,900

Land $125,000

Total assets $315,975

Liabilities:

Accounts payable $49,200

Equity:

Capital $266,775    

Total liabilities and equity $315,975

D’Lite Dry Cleaners

Statement of Owner’s Equity

For the month ended July 31, 202x

Palk, Joel, capital, beginning balance    $180,000

Additional capital raised                           $35,000

net income                                                  $63,775

subtotal                                                     $278,775

drawings                                                   ($12,000)

Palk, Joel, capital, ending balance        $266,775

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