Concept explainers
a)
To Determine: The
a)
Explanation of Solution
Calculate the retained earnings for BD Cleaners as on November 1, 2016.
The retained earnings, for BD Cleaners as on November 1, 2016 are $98,500.
b)
To Indicate: The effect of each given transaction of BD Cleaners on the accounting equation.
b)
Explanation of Solution
Business transaction: Business transaction is a record of any economic activity, resulting in the change in the value of the assets, the liabilities, and the Shareholder’s equities, of a business. Business transaction is also referred to as financial transaction.
Indicate the effect of the given transactions of BD Cleaners.
(Figure – 1)
c)
To Prepare: The financial statements for BD Cleaners for the month ended November 30, 2016.
c)
Explanation of Solution
Financial statements: Financial statements refer to those statements, which are prepared by the Company according to particular formats in accounting to show its financial position.
Financial statements include the following statements:
Income statement: Income statement is a financial statement that shows the net income or net loss by deducting the expenses from the revenues and vice versa.
Prepare the income statement of BD Cleaners for the month ended November 30, 2016.
BD Cleaners | ||
Income Statement | ||
For the month ended November 30 , 2016 | ||
Particulars | Amount ($) | Amount ($) |
Revenues | ||
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 |
Table (1)
Hence, the net income of BD Cleaners for the month ended November 30, 2016 is $40,150.
Statement of Retained Earnings: Statement of retained earnings shows, the changes in the retained earnings, and the income left in the company after payment of the dividends, for the accounting period.
Prepare the statement of Retained earnings for BD Cleaners for the month ended November 30, 2016.
BD Cleaners | ||
Statement of Retained Earnings | ||
For the month ended November 30 , 2016 | ||
Particulars | Amount ($) | Amount ($) |
Retained earnings, November 1, 2016 | $98,500 | |
Net income for the month | $40,150 | |
Deduct - Dividends | $5,000 | |
Increase in Retained earnings | $35,150 | |
Retained earnings, November 30, 2016 | $133,650 |
Table (2)
Hence, the retained earnings of BD Cleaners for the month ended November 30, 2016 are $133,650.
Balance Sheet: Balance Sheet summarizes the assets, the liabilities, and the Shareholder’s equity of a company at a given date. It is also known as the statement of financial status of the business.
Prepare the balance sheet of BD Cleaners for the month ended November 30, 2016.
BD Cleaners | ||
Balance Sheet | ||
November 30 , 2016 | ||
Particulars | Amount ($) | Amount ($) |
Assets | ||
Current Assets | ||
Cash | $81,800 | |
Accounts receivable | $75,000 | |
Supplies | $11,800 | |
Land | $85,000 | |
Total current assets | $253,600 | |
Liabilities and |
||
Liabilities | ||
Accounts payable | $48,950 | |
Owner's equity | ||
Common Stock | $71,000 | |
Retained earnings | $133,650 | |
Total stockholders’ equity | 204,650 | |
Total liabilities and stockholders’ equity | $253,600 |
Table (3)
The balance sheet of BD Cleaners shows asset balance of $253,600 which is same as the balance of liabilities and owner's equity.
d)
To Prepare: The statement of cash flow for BD Cleaners for the month ended November 30, 2016.
d)
Explanation of Solution
Statement of cash flows: This statement reports all the cash transactions which are responsible for inflow and outflow of cash, and result of these transactions is reported as ending balance of cash at the end of reported period.
Prepare the statement of cash flows for BD Cleaners for the month ended November 30, 2016.
DD Cleaners | ||
Statement of Cash Flows | ||
For the month ended November 30, 2016 | ||
Particulars | Amount ($) | Amount ($) |
Cash flows from operating activities: | ||
Cash receipts from customers | $115,000 | |
Cash payments for expenses (1) | $33,200 | |
Payments to creditors | $20,000 | $53,200 |
Net cash flow used for operating activities | $61,800 | |
Cash flows from investing activities: | ||
Cash payment for purchase of land | (-) $35,000 | |
Cash flows from financing activities: | ||
Cash receipt of owner’s investment | $21,000 | |
Deduct - Withdrawals | (-) $5,000 | |
Net cash flow from financing activities | $16,000 | |
Net Increase in cash during November | $42,800 | |
Cash Balance on November 1, 2019 | $39,000 | |
Cash Balance on November 30 , 2019 | $81,800 |
Table (4)
The statement of cash flows for BD Cleaners for the month ended November 30, 2016, shows cash balance of $81,800 on November 30, 2016
Working Note:
Calculate the expenses made through cash payments.
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Chapter 1 Solutions
Financial & Managerial Accounting
- Income Statement and Balance Sheet Fort Worth Corporation began business in January 2016 as a commercial carpet-cleaning and drying service. Shares of stock were issued to the owners in exchange for cash. Equipment was purchased by making a down payment in cash and signing a note payable for the balance. Services are performed for local restaurants and office buildings on open account, and customers are given 15 days to pay their accounts. Rent for office and storage facilities is paid at the beginning of each month. Salaries and wages are paid at the end of the month. The following amounts are from the records of Fort Worth Corporation at the end of its first month of operations: Required Prepare an income statement for the month ended January 31, 2016. Prepare a balance sheet at January 31, 2016. What information would you need about Notes Payable to fully assess Fort Worths longterm viability? 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Any additional hours beyond 80 will be billed to KXMD at 40 per hour. In accordance with the contract, Peyton received 7,200 from KXMD as an advance payment for the first two months. 3. Paid 250 on account. 4. Paid an attorney 900 for reviewing the July 3 contract with KXMD. (Record as Miscellaneous Expense.) 5. Purchased office equipment on account from Office Mart, 7,500. 8. Paid for a newspaper advertisement, 200. 11. Received 1,000 for serving as a disc jockey for a party. 13. Paid 700 to a local audio electronics store for rental of digital recording equipment. 14. Paid wages of 1,200 to receptionist and part-time assistant. Enter the following transactions on lage 2 of the two-column journal: 16. Received 2,000 for serving as a disc jockey for a wedding reception. 18. Purchased supplies on account, 850. 21. Paid 620 to Upload Music for use of its current music demos in making various music sets. 22. Paid 800 to a local radio station to advertise the services of PS Music twice daily for the remainder of July. 23. Served as disc jockey for a party for 2,500. Received 750, with the remainder due August 4, 2018. 27. Paid electric bill, 915. 28. Paid wages of 1,200 to receptionist and part-time assistant. 29. Paid miscellaneous expenses, 540. 30. Served as a disc jockey for a charity ball for 1,500. Received 500, with the remainder due on August 9, 2018. 31. Received 3,000 for serving as a disc jockey for a party. July 31. Paid 1,400 royalties (music expense) to National Music Clearing for use of various artists music during July. 31. Paid dividends, 1,250. 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Post the journal to the ledger, extending the account balance to the appropriate balance column after each posting. 4. Prepare an unadjusted trial balance as of July 31, 2018.arrow_forward
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Paid rent for July, 1,750. 1.Paid a premium of 2,700 for a comprehensive insurance policy covering liability, theft, and fire. The policy covers a one-year period. 2.Received 1,000 cash from customers on account. 3.On behalf of PS Music, Peyton signed a contract with a local radio station, KXMD, to provide guest spots for the next three months. The contract requires PS Music to provide a guest disc jockey for 80 hours per month for a monthly fee of 3,600. Any additional hours beyond 80 will be billed to KXMD at 40 per hour. In accordance with the contract, Peyton received 7,200 from KXMD as an advance payment for the first two months. 3.Paid 250 to creditors on account. 4.Paid an attorney 900 for reviewing the July 3 contract with KXMD. 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Received 750, with the remainder due August 4, 2019. 27.Paid electric bill, 915. 28.Paid wages of 1,200 to receptionist and part-time assistant. 29.Paid miscellaneous expenses, 540. 30.Served as a disc jockey for a charity ball for 1,500. Received 500, with the remainder due on August 9, 2019. 31.Received 3,000 for serving as a disc jockey for a party. 31.Paid 1,400 royalties (music expense) to National Music Clearing for use of various artists music during July. 31.Withdrew 1,250 cash from PS Music for personal use. PS Musics chart of accounts and the balance of accounts as of July 1, 2019 (all normal balances), are as follows: Instructions 1. Enter the July 1, 2019, account balances in the appropriate balance column of a four-column account. Write Balance in the Item column and place a check mark () in the Posting Reference column. (Hint: Verify the equality of the debit and credit balances in the ledger before proceeding with the next instruction.) 2. 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On behalf of PS Music, Peyton signed a contract with a local radio station, KXMD, to provide guest spots for the next three months. The contract requires PS Music to provide a guest disc jockey for SO hours per month for a monthly fee of 3,600. Any additional hours beyond SO will be billed to KXMD at 40 per hour. In accordance with the contract, Peyton received 7,200 from KXMD as an advance payment for the first two months. 3. Paid 250 to creditors on account. 4. Paid an attorney 900 for reviewing the July 3 contract with KXMD. (Record as Miscellaneous Expense.) 5. Purchased office equipment on account from Office Mart, 7,500. 8. Paid for a newspaper advertisement, 200. 11. Received 1,000 for serving as a disc jockey for a party. 13. Paid 700 to a local audio electronics store for rental of digital recording equipment. 11. Paid wages of 1,200 to receptionist and part-time assistant. Enter the following transactions on Page 2 of the two-column journal: 16. Received 2,000 for serving as a disc jockey for a wedding reception. 18. Purchased supplies on account, 850. July 21. Paid 620 to Upload Music for use of its current music demos in making various music sets. 22. Paid 800 to a local radio station to advertise the services of PS Music twice daily for the remainder of July. 23. Served as disc jockey for a party for 2,500. Received 750, with the remainder due August 4, 2019. 27. Paid electric bill, 915. 28. Paid wages of 1,200 to receptionist and part-time assistant. 29. Paid miscellaneous expenses, 540. 30. Served as a disc jockey for a charity ball for 1,500. Received 500, with the remainder due on August 9, 2019. 31. Received 3,000 for serving as a disc jockey for a party. 31. Paid 1,400 royalties (music expense) to National Music Clearing for use of various artists' music during July. 31. Withdrew l,250 cash from PS Music for personal use. PS Music's chart of accounts and the balance of accounts as of July 1, 2019 (all normal balances), are as follows: 11 Cash 3,920 12 Accounts receivable 1,000 14 Supplies 170 15 Prepaid insurance 17 Office Equipment 21 Accounts payable 250 23 Unearned Revenue 31 Peyton smith, Drawing 4,000 32 Fees Earned 500 41 Wages Expense 6,200 50 Office Rent Expense 400 51 Equipment Rent Expense 800 52 Utilities Expense 675 53 Supplies Expense 300 54 music Expense 1,590 55 Advertising Expense 500 56 Supplies Expense 180 59 Miscellaneous Expense 415 Instructions 1.Enter the July 1, 2019, account balances in the appropriate balance column of a four-column account. Write Balance in the Item column and place a check mark () in the Posting Reference column. 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