D’Lite Dry Cleaners is owned and operated by Joel Palk. A building and equipment are currently being rented

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.

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 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. Assets
Accounts
= Liabilities +
Accounts
Owner’s Equity
Cash +
$45,000 +
Receivable
$93,000
+ Supplies
+ $7,000
+ Land =
+ $75,000 =
$220,000 =
Payable
$40,000
$40,000
+ Joel Palk, Capital
+ Joel Palk, Capital
+ Joel Palk, Capital
$180,000 = Joel Palk, Capital






3. D'LITE DRY CLEANERS
Income Statement
For the Month Ended July 31, 2014
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
D'LITE DRY CLEANERS
Statement of Owner’s Equity
For the Month Ended July 31, 2014
Joel Palk, capital, July 1, 2014 $180,000
Additional investment during July $35,000
Net income for July 63,775
$98,775
Less withdrawals 12,000
Increase in owner’s equity 86,775
Joel Palk, capital, July 31, 2014 $266,775
D'LITE DRY CLEANERS
Balance Sheet
July 31, 2014
Assets Liabilities
Cash $ 95,325 Accounts payable $ 49,200
Accounts receivable 89,750
Supplies 5,900 Owner’s Equity
Land 125,000 Joel Palk, capital 266,775
Total liabilities and
Total assets $315,975 owner’s equity $315,975



4. (Optional)
D'LITE DRY CLEANERS
Statement of Cash Flows
For the Month Ended July 31, 2014
Cash flows from operating activities:
Cash received from customers* $120,125
Deduct cash payments for expenses
and payments to creditors** 42,800
Net cash flows from operating activities $ 77,325
Cash flows used for investing activities:
Purchase of land (50,000)
Cash flows from financing activities:
Cash received as owner’s investment $ 35,000
Deduct cash withdrawal by owner 12,000
Net cash flows from financing activities 23,000
Net Increase in cash during July $ 50,325
Cash balance, July 1, 2014 45,000
Cash balance, July 31, 2014 $ 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.