Bev’s Dry Cleaners is owned and operated by Beverly Zahn. 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 November 1, 2014, are as follows: Cash, $39,000; Accounts Receivable, $80,000; Supplies, $11,000; Land, $50,000; Accounts Payable, $31,500. Business transactions during November are summarized as follows:
a. Beverly Zahn invested additional cash in the business with a deposit of $21,000 in the business bank account.
b. Purchased land adjacent to land currently owned by Bev’s Dry Cleaners to use in the future as a parking lot, paying cash of $35,000.
c. Paid rent for the month, $4,000.
d. Charged customers for dry cleaning revenue on account, $72,000.
e. Paid creditors on account, $20,000.
f. Purchased supplies on account, $8,000.
g. Received cash from cash customers for dry cleaning revenue, $38,000.
h. Received cash from customers on account, $77,000.
i. Received monthly invoice for dry cleaning expense for November (to be paid on December 10), $29,450.
j. Paid the following: wages expense, $24,000; truck expense, $2,100; utilities expense, $1,800; miscellaneous expense, $1,300.
k. Determined that the cost of supplies on hand was $11,800; therefore, the cost of supplies used during the month was $7,200.
l. Withdrew $5,000 for personal use.
Instructions
1. Determine the amount of Beverly Zahn’s capital as of November 1.
2. State the assets, liabilities, and owner’s equity as of November 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 November, a statement of owner’s equity for November, and a balance sheet as of November 30.
4. (Optional). Prepare a statement of cash flows for November.
Answer:
1. Assets = Liabilities + Owner’s Equity
Accounts Accounts
Cash + Receivable + Supplies + Land = Payable + Beverly Zahn, Capital
$39,000 + $80,000 + $11,000 + $50,000 = $31,500 + Beverly Zahn, Capital
$180,000 = $31,500 + Beverly Zahn, Capital
$148,500 = Beverly Zahn, Capital
2. Assets = Liabilities + Owner’s Equity
Cash
Accts.
+ Rec. + Supplies + Land
Accts.
= Payable +
Beverly
Zahn,
Capital
Beverly
Zahn,
– Drawing
Bal. 39,000 80,000 11,000 50,000 31,500 148,500
(a) + 21,000 + 21,000
Bal. 60,000 80,000 11,000 50,000 31,500 169,500
(b) – 35,000 + 35,000
Bal. 25,000 80,000 11,000 85,000 31,500 169,500
(c) – 4,000
Bal. 21,000 80,000 11,000 85,000 31,500 169,500
(d) + 72,000
Bal. 21,000 152,000 11,000 85,000 31,500 169,500
(e) – 20,000 – 20,000
Bal. $1,000 152,000 11,000 85,000 11,500 169,500
(f) + 8,000 + 8,000
Bal. $1,000 152,000 19,000 85,000 19,500 169,500
(g) + 38,000
Bal. 39,000 152,000 19,000 85,000 19,500 169,500
(h) + 77,000 – 77,000
Bal. 116,000 75,000 19,000 85,000 19,500 169,500
(i) + 29,450
Bal. 116,000 75,000 19,000 85,000 48,950 169,500
(j) – 29,200
Bal. 86,800 75,000 19,000 85,000 48,950 169,500
(k) – 7,200
Bal. 86,800 75,000 11,800 85,000 48,950 169,500
(l) – 5,000 – 5,000
Bal. 81,800 75,000 11,800 85,000 48,950 169,500 – 5,000
Owner’s Equity (Continued)
Dry
Cleaning
+ Revenue
Dry
Cleaning
– Exp. –
Wages
Exp. –
Supplies
Exp. –
Rent
Exp.
Truck
– Exp.
Utilities
– Exp. –
Misc.
Exp.
Bal.
(a)
Bal.
(b)
Bal.
(c) – 4,000
Bal.
(d) + 72,000
– 4,000
Bal. 72,000 – 4,000
(e)
Bal. 72,000 – 4,000
(f)
Bal. 72,000 – 4,000
(g) + 38,000
Bal. 110,000 – 4,000
(h)
Bal.
(i)
110,000
– 29,450
– 4,000
Bal.
(j)
110,000 – 29,450
– 24,000
– 4,000
– 2,100 – 1,800 – 1,300
Bal.
(k)
110,000 – 29,450 – 24,000
– 7,200
– 4,000 – 2,100 – 1,800 – 1,300
Bal. 110,000 – 29,450 – 24,000 – 7,200 – 4,000 – 2,100 – 1,800 – 1,300
(l)
Bal. 110,000 – 29,450 – 24,000 – 7,200 – 4,000 – 2,100 – 1,800 – 1,300
3. BEV'S DRY CLEANERS
Income Statement
For the Month Ended November 30, 2014
Dry cleaning revenue $110,000
Expenses:
Dry cleaning expense $29,450
Wages expense 24,000
Supplies expense 7,200
Rent expense 4,000
Truck expense 2,100
Utilities expense 1,800
Miscellaneous expense 1,300
Total expenses 69,850
Net income $ 40,150
BEV'S DRY CLEANERS
Statement of Owner’s Equity
For the Month Ended November 30, 2014
Beverly Zahn, capital, November 1, 2014 $148,500
Additional investment during November $21,000
Net income for November 40,150
$61,150
Less withdrawals 5,000
Increase in owner’s equity 56,150
Beverly Zahn, capital, November 30, 2014 $204,650
BEV'S DRY CLEANERS
Balance Sheet
November 30, 2014
Assets Liabilities
Cash $ 81,800 Accounts payable $ 48,950
Accounts receivable 75,000
Supplies 11,800 Owner’s Equity
Land 85,000 Beverly Zahn, capital 204,650
Total liabilities and
Total assets $253,600 owner’s equity $253,600
4. (Optional)
BEV'S DRY CLEANERS
Statement of Cash Flows
For the Month Ended November 30, 2014
Cash flows from operating activities:
Cash received from customers* $115,000
Deduct cash payments for expenses
and payments to creditors** 53,200
Net cash flows from operating activities $61,800
Cash flows used for investing activities:
Purchase of land (35,000)
Cash flows from financing activities:
Cash received as owner’s investment $21,000
Deduct cash withdrawal by owner 5,000
Net cash flows from financing activities 16,000
Net increase in cash during November $42,800
Cash balance, November 1, 2014 39,000
Cash balance, November 30, 2014 $81,800
* $38,000 + $77,000; these amounts are taken from the cash column of the spreadsheet in Part 2.
** $4,000 + $20,000 + $29,200; these amounts are taken from the cash column of the spreadsheet in Part 2.
