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 for a fee. The assets and the liabilities of the business on November 1, 2019, 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 Exhibit 5. 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.Liabilities +
Cash
Accounts
Receivable Supplies Land
Accounts
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.= +
+ + + = + –
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
+ – – –
Supplies
Exp. – – – –
Bal.
(a)
Bal.
(b)
Bal.
(c)– 4,000
Bal.– 4,000
(d) + 72,000
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. 110,000– 4,000
(i) – 29,450
Bal. 110,000 – 29,450– 4,000
(j)– 24,000– 2,100 – 1,800 – 1,300
Bal. 110,000 – 29,450 – 24,000 – 4,000 – 2,100 – 1,800 – 1,300
(k)– 7,200
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
3.
Dry cleaning revenue$110,000
Expenses:
Dry cleaning expense$29,450
Wages expense24,000
Supplies expense7,200
Rent expense4,000
Truck expense2,100
Utilities expense1,800
Miscellaneous expense1,300
Total expenses69,850
Net income$ 40,150
Beverly Zahn, capital, November 1, 2019$148,500
Additional investment during November $21,000
Net income for November40,150
Withdrawals(5,000)
Increase in owner’s equity56,150
Beverly Zahn, capital, November 30, 2019$204,650
Cash$ 81,800
Accounts receivable75,000
Supplies11,800
Land85,000
Total assets$253,600
Accounts payable$ 48,950
Beverly Zahn, capital204,650
Total liabilities and owner’s equity$253,600
– 1,300
4. (Optional)
Cash flows from operating activities:
Cash receipts from customers* $115,000
Cash payments for expenses and payments to
creditors**(53,200)
Net cash flow from operating activities$ 61,800
Cash flows used for investing activities:
Cash payment for purchase of land(35,000)
Cash flows from financing activities:
Cash receipt of owner’s investment $ 21,000
Cash withdrawal by owner(5,000)
Net cash flow from financing activities16,000
Net increase in cash during November$ 42,800
Cash balance, November 1, 201939,000
Cash balance, November 30, 2019$ 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.
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