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 31st. DCC provides cleaning services for individual customers and for employees of several large companies in the city.

Dec 1: DCCs owner paid $10,000 cash to acquire 200 of DCCs 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 Decembers 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 21st.

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

Dec 23: DCCs 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 21st.

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

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

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 31st.

1) Prepare a Trial Balance at 12/31/2017.

2) What was the source of the companys financing Debt or Equity

3) 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.

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