D\'Lite Dry Cleaners is owned and operated by Joel Palk. A building and equipmen
ID: 2422066 • Letter: D
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 capital stock 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; Capital Stock, $60,000. Business transactions during July are summarized as follows:
a) Joel Palk invested additional cash in exchange for capital stock 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) Paid dividends, $12,000.
1. Determine the amount of retained earnings as of July 1 of the current year.
2. Create a spreadsheet of the information
3. Using the balances from the spreadsheet, prepare an income statement for July, a retained earnings statement for July, and a balance sheet as of July 31
Explanation / Answer
Ans 1: Retained Earning = Assets - Liabilities
Assets as at 1 July 2014 = Cash + Accounts Receivable + Land + Supplies
= 45000+93000+75000+7000
Assets as at 1 July 20014 = 220,000
Liabilities as at 1 July 2014 = Capital Stock + accounts Payable
= 60,000 + 40,000 = 100, 000
Therefore retained earnings as at 1 july 2014= 220,000-100,000= $ 120,000
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