Chapter 3 Problem PB34 Modified Please answer the entire 8

Chapter 3 – Problem PB3-4 Modified

Please answer the entire 8 steps of this question

PB3-4     Analyzing, JournaIizing and Interpreting Business Activities (LO 3-3, 3-5 & then some) -

The following items present a sample of business activities involving Dry Cleaner Corporation (DCC) for the year ended December 31^st. DCC provides cleaning services for individual customers and for employees of several large companies in the city.

Dec 1: DCC’s owner paid $10,000 cash to acquire 200 of DCC’s common shares.

Dec 2: DCC borrows $2,000 cash from BofA and signs a promissory note to repay the

principal and interest at 1% per annum on December 1, 2018.

Dec 3: DCC ordered cleaning supplies at a total cost of $2,000. The supplies are

expected to be received in early January.

                  Dec 4: DCC paid $1,500 cash to its landlord which consisted of December’s Rent of

                                                      $1,000 and a Security Deposit of $500.

Dec 7: Customers paid $200 cash to DCC to obtain DCC gift cards that they could use to

                                    obtain future cleaning services at no additional cost.

Dec 15: Customers paid $1,000 cash to DCC for cleaning services performed during the

first two weeks of December.

Dec 21: DCC ran advertising in the local newspaper today at a total cost of $500. DCC is

not required to pay for the advertising until January 21^st.

                  Dec 22: DCC paid $1,000 to the landlord for January rent.

                  Dec 23: DCC’s owner sold 20 of his own DSS common shares to a private investor, at a

selling price of $1,200.

                  Dec 28: DCC paid in full for the advertising run in the local newspaper on December 21^st.

                  Dec 29: The cleaning supplies ordered on December 3^rd were received today. DCC does

not have to pay for these supplies until January 29^th.

Dec 31: Today, DCC completed cleaning services for several large companies at a total price of $2,000. The companies are expected to pay for the services by January 31^st.

Required:

1.Analyze transactions Dec. 1^st thru Dec. 31st to determine their effects on the accounting equation, if any . Once you have determined the effects on the accounting equation prepare a journal entry (Hint – debits first and credits second). Use the format shown below.

2.Post your journal entries in Part 1 above to the T-Accounts. Use the format shown below.

3.Carryforward account balances from Part 2 to the worksheet for Part 3 – show account balances, indicated account type (i.e. asset, liability, equity, revenue or expense), does the account have a debit or credit balance and which financial statement does this account appear on (i.e. Income Statement, Statement of Retained Earnings or Balance Sheet)?

Part 3 - *Limited to Income Statement (I/S), Statement of Retained Earnings (SRE) & Balance Sheet (B/S)

Account

Type of Account

Debit v. Credit

Balance

Financial

Statement*

Account Receivable

Account Payable

Cash

Advertising Expense

Common Stock

Deposit - Landlord

Dividends

Notes Payable - BofA

Account

Type of Account

Debit v. Credit

Balance

Financial

Statement*

Prepaid Rent

Office Expense

Retained Earnings

Rent Expense

Service Revenues

Supplies Expense

Supplies

Unearned Revenue

4.Prepare a Trial Balance at 12/31/2017.

5.Prepare an Income Statement, Statement of Retained Earnings and a classified Balance Sheet.

6.What was the source of the company’s financing – Debt or Equity – show your work?

7.Prepare the Current Ratio and the Quick Ratio (aka Acid Test). Are the ratios good or bad? What standard did you use? New – Net Profit Ratio – compute.

8.Why could the financial statements be inaccurate? Hint - See Chapter 4 Topics for some ideas. Give a couple reasons.

Account	Type of Account	Debit v. Credit Balance	Financial Statement*
Account Receivable
Account Payable
Cash
Advertising Expense
Common Stock
Deposit - Landlord
Dividends
Notes Payable - BofA
Account	Type of Account	Debit v. Credit Balance	Financial Statement*
Prepaid Rent
Office Expense
Retained Earnings
Rent Expense
Service Revenues
Supplies Expense
Supplies
Unearned Revenue

Solution

1. Journal Entry in the books of DCC
Date	Journal Entry	Debit	Credit
01-Dec	Cash A/c	$10,000.00
	To DCC capital		$10,000.00
	( 200 Share on $ 10,000)
02-Dec	Cash A/c	$2,000.00
	1% Promissiory Note payable		$2,000.00
	( Amount borrow by issuing Note repayble on 1dec 18
04-Dec	Rent A/c	$1,000.00
	Security to Lanlord A/c	$500.00
	To Cash		$1,500.00
04-Dec	P&L A/c	$1,000.00
	To Rent A/c		$1,000.00
	( Rent expenditure booked in P& L A/c)
07-Dec	Cash A/c	$200.00
	To Issue Gift card		$200.00
	( Gift card issued to Customer)
15-Dec	Cash A/c	$1,000.00
	To cleaning service Provided		$1,000.00
15-Dec	Cleaning service provided	$1,000.00	$1,000.00
	To P&L A/c
	( Revenue booke din Income statement)
21-Dec	Adveertising expense A/c	$500.00
	To Advertising expense payable		$500.00
	( Advertise servie received and payment will, made on 21 Jan
21-Dec	P&L A/c	$500.00
	Adveertising expense A/c		$500.00
	( Expenditure booking in income satetement
22-Dec	Prepaid rent A/c	$1,000.00
	To Cash		$1,000.00
	( Advance rent paid for Jan )
23-Dec	DCC Capital A/c Dr.	$24,000.00
	Private investor Capital A/c		$24,000.00
	( 20 share sold by owner @ $1200)
28-Dec	Advertising expense payable	$500.00
	To Cash		$500.00
	(Outstanding Advertisement expense paid)
29-Dec	Supplies A/c	$2,000.00
	To Payable to suppier		$2,000.00
	( Supplies reecived agst credit which will be paid on 31 jan)
29-Dec	P&L A/c	$2,000.00
	To Supplies		$2,000.00
	( Supplies expenditure booked in PL
31-Dec	Customer A/c	$2,000.00
	To Cleaning service provided		$2,000.00
31-Dec	Cleaning service provided A/c	$2,000.00
	To P&L A/c		$2,000.00
			2. Journal Ledger in the books of DCC Date Particular Amount Date Particular Amount 01-Dec Cash A/c $10,000.00 01-Dec To DCC capital $10,000.00 02-Dec Cash A/c $2,000.00 02-Dec 1% Promissiory Note payable $2,000.00 04-Dec Rent A/c $1,000.00 04-Dec To Cash $1,500.00 04-Dec Security to Lanlord A/c $500.00 04-Dec P&L A/c $1,000.00 04-Dec To Rent A/c $1,000.00 07-Dec Cash A/c $2,000.00 07-Dec To Issue Gift card $2,000.00 15-Dec cash A/c $1,000.00 15-Dec Cleaning Service Provided $1,000.00 15-Dec Cleaning Service Provided $1,000.00 15-Dec P&L A/c $1,000.00 21-Dec Adveertising expense A/c $500.00 21-Dec Advertising expenses payable $500.00 21-Dec P&L A/c $500.00 21-Dec Adveertising expense A/c $500.00 22-Dec Prepaid Rent $1,000.00 22-Dec Cash $1,000.00 23-Dec DCC Capital $24,000.00 23-Dec Private investor capital $24,000.00 28-Dec Advertising expenses payable $500.00 28-Dec cash $500.00 29-Dec Supplies $2,000.00 29-Dec Payable to Supplier $2,000.00 29-Dec P&L A/c $2,000.00 29-Dec Supplies $2,000.00 31-Dec Customer $2,000.00 31-Dec Cleaning Service Provided $2,000.00 31-Dec Cleaning Service Provided $2,000.00 31-Dec P&L A/c $2,000.00 Total $53,000.00 $53,000.00