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, liabilities, and common stock of the business on July 1, 2016, are as follows: Cash, $30,000; Accounts Receivable, $76,000; Supplies, $10,000; Land, $43,000; Accounts Payable, $32,500; Common Stock, $50,000. Business transactions during July are summarized as follows:

A.	Joel Palk invested additional cash in exchange for common stock with a deposit of $23,000 in the business bank account.
B.	Purchased land adjacent to land currently owned by D'Lite Dry Cleaners to use in the future as a parking lot, paying cash of $35,000.
C.	Paid rent for the month, $3,200.
D.	Charged customers for dry cleaning revenue on account, $73,000.
E.	Paid creditors on account, $19,800.
F.	Purchased supplies on account, $8,000.
G.	Received cash from cash customers for dry cleaning revenue, $37,000.
H.	Received cash from customers on account, $75,000.
I.	Received monthly invoice for dry cleaning expense for November (to be paid on December 10), $29,050.
J.	Paid the following: wages expense, $25,000; truck expense, $2,900; utilities expense, $1,300; miscellaneous expense, $1,400.
K.	Determined that the cost of supplies on hand was $9,300; therefore, the cost of supplies used during the month was $8,700.
L.	Paid dividends, $7,000.

	Required:
	1. Determine the amount of retained earnings as of July 1 of the current year.
	2. The assets, liabilities, and stockholders’ equity as of July 1 are stated 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. In each transaction row (rows indicated by a letter), you must indicate the math sign (+ or -) in columns effected by the transaction. You will not need to enter math signs in the balance rows (rows indicated by Bal.). Entries of 0 (zero) are not required and will be cleared if entered.
	3.a. Prepare an income statement for the month ended July 31, 2016. Refer to the Accounts in the accounting equation grid and to the list of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. If a net loss has been incurred, enter that amount as a negative number using a minus sign. You will not need to enter colons (:) on the income statement.
	3.b. Prepare a retained earnings statement for the month ended July 31, 2016. Refer to the lists of Accounts in the accounting equation grid and to the list of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. Enter all amounts as positive numbers. The word “Less” or “Add” is not needed in the Retained Earnings Statement.
	3.c. Prepare a balance sheet as of July 31, 2016. Refer to the Accounts in the accounting equation grid and to the list of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading.
	4. Prepare a statement of cash flows for July. Enter amounts that represent cash outflows as negative numbers using a minus sign. Refer to the list of Labels and Amount Descriptions for the exact wording of the answer choices for text entries. Be sure to complete the statement heading. You will not need to enter colons (:) or the word Deduct on the statement.

Answer 1

Answer 1.
Trial Balance
July 1, 2016
Particulars	Dr. Amt.	Cr. Amt.
Cash	30,000.00
Accounts Receivable	76,000.00
Supplies	10,000.00
Land	43,000.00
Accounts Payable		32,500.00
Common Stock		50,000.00
Retained Earnings (Bal. Fig.)		76,500.00
Total	159,000.00	159,000.00
Retained Earnings as on July 1, 2016 = 76,500

Answer 2.
S.no.	Assets							=	Liabilities	+	Stockholders' Equity			Income Statement
	Cash	+	Accounts Receivable	+	Supplies	+	Land	=	Accounts Payable	+	Common Stock	+	Retained Earnings	Revenue	-	Expenses	=	Income
Beg. Bal.	30,000.00	+	76,000.00	+	10,000.00	+	43,000.00	=	32,500.00	+	50,000.00	+	76,500.00	-	-	-	=	-
a.	23000	+		+		+		=		+	23000	+		-	-		=	-
Balance	53,000.00	+	76,000.00	+	10,000.00	+	43,000.00	=	32,500.00	+	73,000.00	+	76,500.00	-	-	-	=	-
b.	(35,000.00)	+	-	+	-	+	35,000.00	=		+		+		-	-		=	-
Balance	18,000.00	+	76,000.00	+	10,000.00	+	78,000.00	=	32,500.00	+	73,000.00	+	76,500.00	-	-	-	=	-
c.	(3,200.00)	+		+		+		=		+		+	(3,200.00)	-	-	3,200.00	=	(3,200.00)
Balance	14,800.00	+	76,000.00	+	10,000.00	+	78,000.00	=	32,500.00	+	73,000.00	+	73,300.00	-	-	3,200.00	=	(3,200.00)
d.		+	73,000.00	+		+		=		+		+	73,000.00	73,000.00	-	-	=	73,000.00
Balance	14,800.00	+	149,000.00	+	10,000.00	+	78,000.00	=	32,500.00	+	73,000.00	+	146,300.00	73,000.00	-	3,200.00	=	69,800.00
e.	(19,800.00)	+		+		+		=	(19,800.00)	+		+			-		=	-
Balance	(5,000.00)	+	149,000.00	+	10,000.00	+	78,000.00	=	12,700.00	+	73,000.00	+	146,300.00	73,000.00	-	3,200.00	=	69,800.00
f.		+		+	8,000.00	+		=	8,000.00	+		+			-		=	-
Balance	(5,000.00)	+	149,000.00	+	18,000.00	+	78,000.00	=	20,700.00	+	73,000.00	+	146,300.00	73,000.00	-	3,200.00	=	69,800.00
g.	37,000.00	+		+		+		=		+		+	37,000.00	37,000.00	-		=	37,000.00
Balance	32,000.00	+	149,000.00	+	18,000.00	+	78,000.00	=	20,700.00	+	73,000.00	+	183,300.00	110,000.00	-	3,200.00	=	106,800.00
h.	75,000.00	+	(75,000.00)	+		+		=		+		+			-		=	-
Balance	107,000.00	+	74,000.00	+	18,000.00	+	78,000.00	=	20,700.00	+	73,000.00	+	183,300.00	110,000.00	-	3,200.00	=	106,800.00
i.		+		+		+		=	29,050.00	+		+	(29,050.00)		-	29,050.00	=	(29,050.00)
Balance	107,000.00	+	74,000.00	+	18,000.00	+	78,000.00	=	49,750.00	+	73,000.00	+	154,250.00	110,000.00	-	32,250.00	=	77,750.00
j.	(30,600.00)	+		+		+		=		+		+	(30,600.00)		-	30,600.00	=	(30,600.00)
Balance	76,400.00	+	74,000.00	+	18,000.00	+	78,000.00	=	49,750.00	+	73,000.00	+	123,650.00	110,000.00	-	62,850.00	=	47,150.00
k.		+		+	(8,700.00)	+		=		+		+	(8,700.00)		-	8,700.00	=	(8,700.00)
Balance	76,400.00	+	74,000.00	+	9,300.00	+	78,000.00	=	49,750.00	+	73,000.00	+	114,950.00	110,000.00	-	71,550.00	=	38,450.00
l.	(7,000.00)	+		+		+		=		+		+	(7,000.00)		-		=	-
Balance	69,400.00	+	74,000.00	+	9,300.00	+	78,000.00	=	49,750.00	+	73,000.00	+	107,950.00	110,000.00	-	71,550.00	=	38,450.00
	Total Assets = $230,700								Total Liabilities = $49,750		Total stockholders' Equity = $180,950
									Total stockholders' Equity = $230,700

Answer 3-a.
Income Statement
For the Month Ended July 31, 2016
Revenue
Dry Cleaning revenue		110,000.00
Expenses
Rent Expenses	3,200.00
Dry Cleaning Expenses	29,050.00
Wages Expenses	25,000.00
Truck Expenses	2,900.00
Utilities Expenses	1,300.00
Miscellaneous Expenses	1,400.00
Supplies Expenses	8,700.00	71,550.00
Net Income		38,450.00
Answer 3-b.
Retained Earning Statement
For the Month Ended July 31, 2016
Beginning Balance - July 1, 2016	76,500.00
Net Income	38,450.00
Dividend	(7,000.00)
Ending Balance - July 31, 2016	107,950.00
Answer 3-c.
Balance Sheet
June 31, 2016
Assets
Current Assets
Cash	69,400.00
Accounts Receivable	74,000.00
Supplies	9,300.00
Total Current Assets		152,700.00
Property, Plant & Equipment
Land		78,000.00
Total Assets		230,700.00
Liabilities & Stockholders' Equity
Liabilities
Current Liabilities
Accounts Payable		49,750.00
Long-Term Liabilities		-
Total Liabilities
Stockholders' Equity
Common Stock	73,000.00
Retained Earnings	107,950.00
Total Stockholders' Equity		180,950.00
Total Liabilities & Stockholders' Equity		230,700.00
Answer 4.
Statement of Cash Flows (Indirect Method)
For the Month ended July 31, 2016
Cash Flow from opearating activities:
Net Income		38,450
Add/(Less) non cash effects on operating activities
Decrease in Accounts Receivables	2,000
Decrease in Supplies	700
Increase in Accounts Payables	17,250	19,950
Net Cash provided by operating activities		58,400
Cash flow from Investing Activities
Purchase of Land	(35,000)
Net Cash provided by Investing activities		(35,000)
Cash Flow from Financing Activities
Issue of Common Stock	23,000
Cash dividend paid	(7,000)
Net Cash used by Financing activities		16,000
Net Increase / (Decrease) in Cash		39,400
Cash balance at the beginning - July 1, 2016		30,000
Cash balance at the end - July 31, 2016.		69,400