Financial & Managerial Accounting
Financial & Managerial Accounting
14th Edition
ISBN: 9781337119207
Author: Carl Warren, James M. Reeve, Jonathan Duchac
Publisher: Cengage Learning
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Textbook Question
Chapter 1, Problem 1.5BPR

Transactions; financial statements

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 at wholesale rates. The assets, liabilities, and common Mock of the business on November 1, 2018, are as follows: Ca.sh, $39,000. Accounts Receivable, $80,000; Supplies, $11,000; Land, $50,000; Accounts Payable, $31,500; Common Stock, $50,000. Business transactions during November are summarized as follows:

  1. A. A Beverly Zahn invested additional cash in exchange for common stock with a deposit of $21,000 in the business bank account.
  2. B. 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.
  3. C. Paid rent for the month, $4,000.
  4. D. Charged customers for dry cleaning revenue on account $72,000.
  5. E. Paid creditors on account $20,000.
  6. F. Purchased supplies on account, $8,000.
  7. G. Received cash from customers for dry cleaning revenue, $38,000.
  8. H. Received cash from customers on account. $77,000.
  9. I. Received monthly invoice for dry cleaning expense for November (to be paid on December 10), $29,450.
  10. J. Paid the following: wages expense, $24,000; truck expense, $2,100; utilities expense, $ 1,800; miscellaneous expense, $1,300.
  11. K. Determined that the cost of supplies on hand was $11300; therefore, the cost of supplies used during the month was $7,200.
  12. L. Paid dividends, $5,000

Instructions

  1. 1. Determine the amount of retained earnings as of November 1.
  2. 2. Slate the assets, liabilities, and stockholders’ equity as of November 1 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.
  3. 3. Prepare an income statement for November, a retained earnings statement for November, and a balance sheet as of November 30.
  4. 4. (Optional) Prepare a statement of cash flows for November.

a)

Expert Solution
Check Mark
To determine

Accounting equation: Accounting equation is an accounting tool expressed in the form of equation, by creating a relationship between the resources or assets of a company, and claims on the resources by the creditors and the owners. Accounting equation is expressed as shown below:

Assets = Liabilities + Shareholders Equity

To Determine: The retained earnings for BD Cleaners as on November 1, 2018.

Explanation of Solution

Calculate the retained earnings for BD Cleaners as on November 1, 2018.

Assets                         =Liabilities+Owner's Equity(Cash+Accounts Receivable+Supplies+Land)=  Liabilities+[Common Stock +Retained earnings]($39,000+$80,000+$11,000+$50,000)= $31,500 + ($50,000+Retained earnings)$180,000 =$31,500 + ($50,000 + Retained earnings)$180,000$31,500  = $50,000 + Retained earnings148,500 = $50,000 + Retained earningsRetained earnings=$148,500$50,000=$98,500

The retained earnings, for BD Cleaners as on November 1, 2018 are $98,500.

b)

Expert Solution
Check Mark
To determine

To Indicate: The effect of each given transaction of BD Cleaners on the accounting equation.

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.

Financial & Managerial Accounting, Chapter 1, Problem 1.5BPR

(Figure – 1)

c)

Expert Solution
Check Mark
To determine

To Prepare: The financial statements for BD Cleaners for the month ended November 30, 2018.

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, 2018.

BD Cleaners
Income Statement
For the month ended November 30 , 2018
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, 2018 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, 2018.

BD Cleaners
Statement of Retained Earnings
For the month ended November 30 , 2018
Particulars Amount ($) Amount ($)
Retained earnings, November 1, 2018 $98,500
Net income for the month $40,150
Deduct - Dividends $5,000
Increase in Retained earnings $35,150
Retained earnings, November 30, 2018 $133,650

Table (2)

Hence, the retained earnings of BD Cleaners for the month ended November 30, 2018 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, 2018.

BD Cleaners
Balance Sheet
November 30 , 2018
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 Stockholders’ Equity
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)

Expert Solution
Check Mark
To determine

To Prepare: The statement of cash flow for BD Cleaners for the month ended November 30, 2018.

Answer to Problem 1.5BPR

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, 2018.

DD Cleaners
Statement of Cash Flows
For the month ended November 30, 2018
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, 2018, shows cash balance of $81,800 on November 30, 2018

Explanation of Solution

Working Note:

Calculate the expenses made through cash payments.

Expenses paid forusing cash} = [(WageExpense)+(RentExpense)+(TruckExpense)+(UtilitesExpense)+(MiscellaneousExpense)]=$24,000+$4,000+$2,100+$1,800+$1,300=$33,200 (1)

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Chapter 1 Solutions

Financial & Managerial Accounting

Ch. 1 - Prob. 1.1BECh. 1 - Prob. 1.2BECh. 1 - Transactions Interstate Delivery Service is owned...Ch. 1 - Income statement The revenues and expenses of...Ch. 1 - Prob. 1.5BECh. 1 - Balance sheet Using the following data for...Ch. 1 - Statement of cash flows A summary of cash flows...Ch. 1 - Types of businesses The following is a list of...Ch. 1 - Prob. 1.2EXCh. 1 - Prob. 1.3EXCh. 1 - Accounting equation The total assets and total...Ch. 1 - Prob. 1.5EXCh. 1 - Accounting equation Determine the missing amount...Ch. 1 - Prob. 1.7EXCh. 1 - Asset, liability, and stockholders equity items...Ch. 1 - Effect of transactions on accounting equation What...Ch. 1 - Effect of transactions on accounting equation A. A...Ch. 1 - Effect of transactions on stockholders equity...Ch. 1 - Transactions The following selected transactions...Ch. 1 - Nature of transactions Teri West operates her own...Ch. 1 - Net income and dividends The income statement for...Ch. 1 - Net income and stockholders equity for four...Ch. 1 - Balance sheet items From the following list of...Ch. 1 - Income statement items From the following list of...Ch. 1 - Prob. 1.18EXCh. 1 - Income statement Imaging Services was organized on...Ch. 1 - Missing amounts from balance sheet and income...Ch. 1 - Balance sheets, net income Financial information...Ch. 1 - Financial statements Each of the following items...Ch. 1 - Statement of cash flows Indicate whether each of...Ch. 1 - Statement of cash flows A summary of cash flows...Ch. 1 - Financial statements We-Sell Realty, organized as...Ch. 1 - Transactions On September 1 of the current year,...Ch. 1 - Financial statements The amounts of the assets and...Ch. 1 - Financial statements Seth Feye established...Ch. 1 - Transactions; financial statements On August 1,...Ch. 1 - Transactions; financial statements DLite Dry...Ch. 1 - Missing amounts from financial statements The...Ch. 1 - Transactions Amy Austin established an insurance...Ch. 1 - Financial statements The amounts of the assets and...Ch. 1 - Financial statements Jose Loder established Bronco...Ch. 1 - Prob. 1.4BPRCh. 1 - Transactions; financial statements Bevs Dry...Ch. 1 - Missing amount from financial statements The...Ch. 1 - Peyton Smith enjoys listening to all types of...Ch. 1 - Prob. 1ADMCh. 1 - Home Depot: Ratio of liabilities to stockholders'...Ch. 1 - Lowes: Ratio of liabilities to stockholders equity...Ch. 1 - Prob. 4ADMCh. 1 - Ethics in Action Marco Brolo is one of three...Ch. 1 - Prob. 1.3TIF
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