The financial statements at the end of Wolverine Realty’s first month of operations are as follows:

The financial statements at the end of Wolverine Realty’s first month of operations are as follows:

Wolverine Realty Income Statement For the Month Ended April 30, 2019 Fees earned. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $      (a) Expenses:

Wages expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $300,000 Rent expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100,000 Supplies expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (b) Utilities expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000 Miscellaneous expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .     25,000 Total expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 475,000 Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $275,000 Wolverine Realty Statement of Owner’s Equity For the Month Ended April 30, 2019 Dakota Rowe, capital, April 1, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $       (c) Investment on April 1, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 375,000 Net income for April . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .               (d) Withdrawals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (125,000) Increase in owner’s equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .(e) Dakota Rowe, capital, April 30, 2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $       (f ) Wolverine Realty Balance Sheet April 30, 2019 Assets

Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $462,500

Supplies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,500

Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,000 Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $         (g) Liabilities Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $  100,000 Owner’s Equity

Dakota Rowe, capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (h) Total liabilities and owner’s equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $            (i) Wolverine Realty Statement of Cash Flows For the Month Ended April 30, 2019 Cash flows from operating activities: Cash receipts from customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $        ( j) Cash payments for expenses and payments to creditors . . . . . . . . . . .   (387,500) Net cash flow from operating activities . . . . . . . . . . . . . . . . . . . . . . . . . . $      (k) Cash flows from investing activities: Cash payments for acquisition of land . . . . . . . . . . . . . . . . . . . . . . . . . . .(l) Cash flows from financing activities: Cash receipt of owner’s investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $           (m) Cash withdrawals by owner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .                (n) Net cash flow from financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . .(0) Net increase (decrease) in cash and April 30, 2019, cash balance . . . . . . $       (p)

Instructions

By analyzing the interrelationships among the four financial statements, determine the proper amounts for (a) through (p).

Answer:

a. Fees earned, $750,000 ($275,000 + $475,000)

b. Supplies expense, $30,000 ($475,000 – $300,000 – $100,000 – $20,000 – $25,000)

c. Dakota Rowe, capital, April 1, 2019, $0; Wolverine Realty was organized on April 1, 2019.

d. Net income for April, $275,000 from income statement

e. Increase in owner’s equity, $525,000 ($375,000 + $275,000 – $125,000)

f. Dakota Rowe, capital, April 30, 2019, $525,000

g. Total assets, $625,000 ($462,500 + $12,500 + $150,000)

h. Dakota Rowe, capital, $525,000 ($625,000 – $100,000); same as (g)

i. Total liabilities and owner’s equity, $625,000 ($100,000 + $525,000)

j. Cash received from customers, $750,000; this is the same as fees earned (a) since there are no accounts receivable.

k. Net cash flow from operating activities, $362,500 ($750,000 – $387,500)

l. Cash payments for acquisition of land, ($150,000)

m. Cash received as owner’s investment, $375,000

n. Cash withdrawal by owner, ($125,000)

o. Net cash flow from financing activities, $250,000 ($375,000 – $125,000)

p. Net increase in cash and April 30, 2019, cash balance, $462,500 ($362,500 – $150,000 + $250,000); also, the cash balance on the balance sheet

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 for a fee. The assets and liabilities of the business on July 1, 2019, 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 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 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.= +

Cash + + + = +

$45,000 + + + = +

= +

Supplies Land

$7,000

$220,000

$40,000

$40,000

Joel Palk, Capital

1.= +

Cash + + + = +

$45,000 + + + = +

= +

= Joel Palk, Capital

2.= +

+ + + = + –

Bal. 45,000 93,000 7,000 75,000 40,000 180,000

(a) + 35,000+ 35,000

Bal. 80,000 93,000 7,000 75,000 40,000 215,000

(b) – 50,000+ 50,000

Bal. 30,000 93,000 7,000 125,000 40,000 215,000

(c) + 32,125

Bal. 62,125 93,000 7,000 125,000 40,000 215,000

(d) – 6,000

Bal. 56,125 93,000 7,000 125,000 40,000 215,000

(e)  + 2,500 + 2,500

Bal. 56,125 93,000 9,500 125,000 42,500 215,000

(f) – 22,800– 22,800

Bal. 33,325 93,000 9,500 125,000 19,700 215,000

(g)  + 84,750

Bal. 33,325 177,750 9,500 125,000 19,700 215,000

(h)  + 29,500

Bal. 33,325 177,750 9,500 125,000 49,200 215,000

(i) – 14,000

Bal. 19,325 177,750 9,500 125,000 49,200 215,000

(j) + 88,000 – 88,000

Bal. 107,325 89,750 9,500 125,000 49,200 215,000

(k)  – 3,600

Bal. 107,325 89,750 5,900 125,000 49,200 215,000

(l) – 12,000– 12,000

Bal. 95,325 89,750 5,900 125,000 49,200 215,000 – 12,000

+ – – – – – – –

Bal.

(a)

Bal.

(b)

Bal.

(c) + 32,125

Bal. 32,125

(d)– 6,000

Bal. 32,125 – 6,000

(e)

Bal. 32,125 – 6,000

(f)

Bal. 32,125 – 6,000

(g) + 84,750

Bal. 116,875 – 6,000

(h) – 29,500

Bal. 116,875 – 29,500 – 6,000

(i)– 7,500 – 2,500 – 1,300 – 2,700

Bal. 116,875 – 29,500 – 7,500 – 6,000 – 2,500 – 1,300 – 2,700

(j)

Bal. 116,875 – 29,500 – 7,500 – 6,000 – 2,500 – 1,300 – 2,700

(k)– 3,600

Bal. 116,875 – 29,500 – 7,500 – 6,000 – 3,600 – 2,500 – 1,300 – 2,700

(l)

Bal. 116,875 – 29,500 – 7,500 – 6,000 – 3,600 – 2,500 – 1,300 – 2,700

3.

Dry cleaning revenue$116,875

Expenses:

Dry cleaning expense$29,500

Wages expense7,500

Rent expense6,000

Supplies expense3,600

Truck expense2,500

Utilities expense1,300

Miscellaneous expense2,700

Total expenses53,100

Net income$ 63,775

Joel Palk, capital, July 1, 2019$180,000

Additional investment during July $ 35,000

Net income for July63,775

Withdrawals(12,000)

Increase in owner’s equity86,775

Joel Palk, capital, July 31, 2019$266,775

Cash$ 95,325

Accounts receivable89,750

Supplies5,900

Land125,000

Total assets$315,975

Accounts payable$ 49,200

Joel Palk, capital266,775

Total liabilities and owner’s equity$315,975

4. (Optional)

Cash flows from operating activities: 

Cash receipts from customers* $120,125

Cash payments for expenses and payments to

creditors**(42,800)

Net cash flow from operating activities$ 77,325

Cash flows used for investing activities:

Cash payment for purchase of land(50,000)

Cash flows from financing activities:

Cash receipt of owner’s investment $ 35,000

Cash withdrawal by owner(12,000)

Net cash flow from financing activities23,000

Net increase in cash during July$ 50,325

Cash balance, July 1, 201945,000

Cash balance, July 31, 2019$ 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.

On July 1, 2019, Pat Glenn established Half Moon Realty. Pat completed the following transactions during the month of July:

On July 1, 2019, Pat Glenn established Half Moon Realty. Pat completed the following transactions during the month of July:

a. Opened a business bank account with a deposit of $25,000 from personal funds.

b. Purchased office supplies on account, $1,850.

c. Paid creditor on account, $1,200.

d. Earned sales commissions, receiving cash, $41,500.

e. Paid rent on office and equipment for the month, $3,600.

f. Withdrew cash for personal use, $4,000.

g. Paid automobile expenses (including rental charge) for the month, $3,050, and miscellaneous expenses, $1,600.

h. Paid office salaries, $5,000.

i. Determined that the cost of supplies on hand was $950; therefore, the cost of supplies used was $900.

Instructions

1. Indicate the effect of each transaction and the balances after each transaction, using the following tabular headings:

Assets 5 Liabilities 1 Owner’s Equity Cash + Supplies = Accounts Payable + Pat Glenn, Capital – Pat Glenn,  Drawing + Sales Commissions –

2. Prepare an income statement for July, a statement of owner’s equity for July, and a balance sheet as of July 31.

Answer:

1. = +

+ = + – + – – – – –

(a) + 25,000 + 25,000

(b)  + 1,850 + 1,850

Bal. 25,000 1,850 1,850 25,000

(c) – 1,200 – 1,200

Bal. 23,800 1,850 650 25,000

(d) + 41,500+ 41,500

Bal. 65,300 1,850 650 25,000 41,500

(e) – 3,600– 3,600

Bal. 61,700 1,850 650 25,000 41,500 – 3,600

(f) – 4,000– 4,000

Bal. 57,700 1,850 650 25,000 – 4,000 41,500 – 3,600

(g) – 4,650– 3,050 – 1,600

Bal. 53,050 1,850 650 25,000 – 4,000 41,500 – 3,600 – 3,050 – 1,600

(h) – 5,000– 5,000

Bal. 48,050 1,850 650 25,000 – 4,000 41,500 – 5,000 – 3,600 – 3,050 – 1,600

(i)  – 900– 900

Bal. 48,050 950 650 25,000 – 4,000 41,500 – 5,000 – 3,600 – 3,050 – 900 – 1,600

2.

Sales commissions$41,500

Expenses:

Salaries expense$5,000

Rent expense3,600

Automobile expense3,050

Supplies expense900

Miscellaneous expense1,600

Total expenses14,150

Net income$27,350

Pat Glenn, capital, July 1, 2019$ 0

Investment on July 1, 2019$25,000

Net income for July27,350

Withdrawals(4,000)

Increase in owner’s equity48,350

Pat Glenn, capital, July 31, 2019$48,350

Cash$48,050

Supplies950

Total assets$49,000

Accounts payable$ 650

Pat Glenn, capital48,350

Total liabilities and owner’s equity$49,000

Seth Feye established Reliance Financial Services on July 1, 2019. Reliance Financial Services offers financial planning

Seth Feye established Reliance Financial Services on July 1, 2019. Reliance Financial Services offers financial planning advice to its clients. The effect of each transaction and the balances after each transaction for July follow:

Assets 5Liabilities1 Owner’s Equity

Cash + Accounts Receivable + Supplies = Accounts Payable + Seth Feye,  Capital Seth Feye, − Drawing + Fees  Earned − Salaries Expense − Rent  Expense − Auto Expense − Supplies  Expense − Misc. Expense a. +50,000 +50,000 b. +7,000 +7,000 Bal.     50,000    7,000  7,000    50,000 c. –3,600 −3,600 Bal.     46,400    7,000  3,400    50,000 d. +110,000+110,000

Bal. 156,400    7,000  3,400    50,000    110,000 e. –33,000–33,000 Bal. 123,400    7,000  3,400    50,000    110,000 –33,000 f. −20,800–16,000 –4,800

Bal.    102,600    7,000  3,400    50,000   110,000 –33,000 –16,000 –4,800 g. −55,000–55,000 Bal. 47,600    7,000  3,400    50,000    110,000 –55,000 –33,000 –16,000 –4,800 h. –4,500–4,500 Bal.    47,600    2,500  3,400    50,000    110,000 –55,000 –33,000 –16,000 –4,500 –4,800 i. +34,500+ 34,500 Bal.    47,600    34,500    2,500  3,400    50,000 144,500 –55,000 –33,000 –16,000 –4,500 –4,800 j. –15,000–15,000 Bal.    32,600    34,500    2,500  3,400    50,000 –15,000 144,500 –55,000 –33,000 –16,000 –4,500 –4,800

Instructions

1. Prepare an income statement for the month ended July 31, 2019.

2. Prepare a statement of owner’s equity for the month ended July 31, 2019.

3. Prepare a balance sheet as of July 31, 2019.

4. (Optional) Prepare a statement of cash flows for the month ending July 31, 2019.

Answer:

1.

Fees earned$144,500

Expenses:

Salaries expense$55,000

Rent expense33,000

Auto expense16,000

Supplies expense4,500

Miscellaneous expense4,800

Total expenses113,300

Net income$ 31,200

2.

Seth Feye, capital, July 1, 2019$ 0

Investment on July 1, 2019$ 50,000

Net income for July31,200

Withdrawals(15,000)

Increase in owner’s equity66,200

Seth Feye, capital, July 31, 2019$66,200

3.

Cash$32,600

Accounts receivable34,500

Supplies2,500

Total assets$69,600

Accounts payable$ 3,400

Seth Feye, capital66,200

Total liabilities and owner’s equity$69,600

4. (Optional)

Cash flows from operating activities: 

Cash receipts from customers$ 110,000

Cash payments for expenses and payments to

creditors*(112,400)    

Net cash flow used for operating activities$ (2,400)

Cash flows from investing activities0

Cash flows from financing activities:

Cash receipt of owner’s investment $ 50,000

Cash withdrawal by owner(15,000)      

Net cash flow from financing activities35,000       

Net increase in cash and July 31, 2019, cash balance $32,600

* $3,600 + $33,000 + $20,800 + $55,000; these amounts are taken from the cash column 

shown in the problem.

The amounts of the assets and liabilities of Nordic Travel Agency at December 31, 2019, the end of the year

The amounts of the assets and liabilities of Nordic Travel Agency at December 31, 2019, the end of the year, and its revenue and expenses for the year follow. The capital of Ian Eisele, owner, was $670,000 on January 1, 2019, the beginning of the year. During the year, Ian withdrew $42,000.

Accounts payable $ 69,500 

Rent expense $ 36,000

Accounts receivable 285,000 

Supplies 5,500

Cash 190,500 

Supplies expense 4,100

Fees earned 912,500 

Utilities expense 28,500

Land 544,000 

Wages expense 510,000

Miscellaneous expense 6,400

Instructions

1. Prepare an income statement for the year ended December 31, 2019.

2. Prepare a statement of owner’s equity for the year ended December 31, 2019.

3. Prepare a balance sheet as of December 31, 2019.

4. What item appears on both the statement of owner’s equity and the balance sheet?

Answer:

1.

Fees earned$912,500

Expenses:

Wages expense$510,000

Rent expense36,000

Utilities expense28,500

Supplies expense4,100

Miscellaneous expense6,400

Total expenses585,000

Net income$327,500

2.

Ian Eisele, capital, January 1, 2019$670,000

Net income for the year$327,500

Withdrawals(42,000)

Increase in owner’s equity285,500

Ian Eisele, capital, December 31, 2019$955,500

3.

Cash$ 190,500

Accounts receivable285,000

Supplies5,500

Land544,000

Total assets$1,025,000

Accounts payable$ 69,500

Ian Eisele, capital955,500

Total liabilities and owner’s equity$1,025,000

4. Ian Eisele, Capital of $955,500

On June 1 of the current year, Chad Wilson established a business to manage rental property. He completed the following transactions during June:

On June 1 of the current year, Chad Wilson established a business to manage rental property. He completed the following transactions during June:

a. Opened a business bank account with a deposit of $30,000 from personal funds.

b. Purchased office supplies on account, $1,800.

c. Received cash from fees earned for managing rental property, $10,000.

d. Paid rent on office and equipment for the month, $4,500.

e. Paid creditors on account, $1,250.

f. Billed customers for fees earned for managing rental property, $16,800.

g. Paid automobile expenses (including rental charges) for the month, $750, and miscellaneous expenses, $980.

h. Paid office salaries, $4,000.

i. Determined that the cost of supplies on hand was $680; therefore, the cost of supplies used was $1,120.

j. Withdrew cash for personal use, $7,500.

Instructions

1. Indicate the effect of each transaction and the balances after each transaction, using the following tabular headings:

Assets 5Liabilities1 Owner’s Equity Cash + Receivable + Supplies= Accounts  Payable + Chad Wilson, Capital – Chad Wilson, Drawing + Fees Earned – Rent   Expense – Salaries Expense – Supplies Expense – Auto Expense – Misc. Expense

2.  Briefly explain why the owner’s investment and revenues increased owner’s equity, while withdrawals and expenses decreased owner’s equity.

3. Determine the net income for June.

4. How much did June’s transactions increase or decrease Chad Wilson’s capital?

Answer:

1. Assets = +

+ + = + – + – – – – –

(a) + 30,000+ 30,000

(b)  + 1,800 + 1,800

Bal. 30,000 1,800 1,800 30,000

(c) + 10,000+ 10,000

Bal. 40,000 1,800 1,800 30,000 10,000

(d) – 4,500– 4,500

Bal. 35,500 1,800 1,800 30,000 10,000 – 4,500

(e) – 1,250– 1,250

Bal. 34,250 1,800 550 30,000 10,000 – 4,500

(f)  + 16,800+ 16,800

Bal. 34,250 16,800 1,800 550 30,000 26,800 – 4,500

(g) – 1,730– 750 – 980

Bal. 32,520 16,800 1,800 550 30,000 26,800 – 4,500– 750 – 980

(h) – 4,000– 4,000

Bal. 28,520 16,800 1,800 550 30,000 26,800 – 4,500 – 4,000 – 750 – 980

(i)  – 1,120– 1,120

Bal. 28,520 16,800 680 550 30,000 26,800 – 4,500 – 4,000 – 1,120 – 750 – 980

(j) – 7,500– 7,500

Bal. 21,020 16,800 680 550 30,000 – 7,500 26,800 – 4,500 – 4,000 – 1,120 – 750 – 980

2. Owner’s equity is the right of owners to the assets of the business. These rights are increased by owner’s investments and revenues 

and decreased by owner’s withdrawals and expenses.

3. $15,450 ($26,800 – $4,500 – $4,000 – $1,120 – $750 – $980)

4. June’s transactions increased Chad Wilson’s capital to $37,950 ($30,000 + $15,450 – $7,500), which is the initial capital investment of $30,000 plus 

June's net income of $15,450 less Chad Wilson’s withdrawals of $7,500.