Prepare a Statement of Cash Flows (either method for the operating section is acceptable).

  • Record the external and internal events related to Edmond Laundry’s first month of operations, either using the F-SET. Prepare the financial statements as of the end of the first month of operations. Ignore income taxes for purposes of this assignment. Use your judgment as to how to classify expenses on the income statement

In 2021 Adrian Edmonds decided to open a laundry and dry-cleaning establishment near Tucson, AZ.  Adrian organized the business in the form of a corporation.  During the first month of operations (May 2021), the following events took place.  At the end of the first month, Adrian wants to assess the financial condition of the company.  He has asked you to prepare an income statement and balance sheet to assist him in this task.

Record the external and internal events related to Edmond Laundry’s first month of operations, either using the F-SET. Prepare the financial statements as of the end of the first month of operations. Ignore income taxes for purposes of this assignment. Use your judgment as to how to classify expenses on the income statement.

Deliverables:

  1. F-SET with increases/decreases for all external and internal events, including adjusting entries and closing entries. If you use a spreadsheet, list the accounts as columns, with assets listed in order of liquidity and liabilities listed in order of maturity (to the best of your ability).
  2. Prepare a multi-step Income Statement and a classified Balance Sheet. Multi-step income statements have totals for gross profit and operating income.  Classified balance sheets have totals for current assets and current liabilities.
  3. Prepare a Statement of Cash Flows (either method for the operating section is acceptable).
  4. Answer the following questions. Please limit your answers to 1-2 sentences per question. (up to 1% extra credit)
    1. Calculate Edmond Laundry’s return on assets. Is this a meaningful number for an early-stage company? Explain your reasoning.
    2. Are operating cash flows negative or positive? Do you expect operating cash flows to be positive or negative next month?
    3. Calculate Edmond Laundry’s current ratio. Is this a meaningful number for an early-stage company? Explain your reasoning.

Transactions:

May 1.  Adrian opened a bank account in the name of Edmond Laundry and deposited $20,000 in the account. 

May 1.   Adrian located a store front which was appropriate for a laundry business and paid the landlord $2,000 advance for the first two months of rent.

May 1.   Adrian went to Tucson Savings and Loan and borrowed $8,000 to finance the purchase of laundry equipment.  The 2-year loan carries interest an annual interest rate of 12%, and interest payments are due every six months.

May 2.   Adrian purchased 10 washers and dryers, paying cash of $18,000.  The equipment is expected to last for 10 years with zero salvage value.

May 10.  Adrian purchased on account various cleaning supplies for $2,000.

3. Edmond Laundry uses the straight-line depreciation method.