Any answers here for Case 4-4 Accounting Text & Cases 13th Ed, Robert N Anthony et. al

Case 44 Waltham Oil and Lube Center, Inc. On April 1 Frank Knight incorporated and capitalized with $40,000 of his savings Waltham Oil and Lube Centers, Inc. On the same day, he signed a lease and operating agreement to operate the recently constructed Waltham Oil and Lube Center, located in Waltham, Massachusetts. The facility and name were owned by National Oil and Lube Centers, Inc., a nationwide chain of centers offering through local franchisees automobile oil change and lubrication services. The lease and operating agreement required Knight to deposit $40,000 with National as evidence of his good faith and to pay for certain pre-operating costs incurred by National on behalf of theWaltham Center. In addition, the lease portion of the agreement called for Knight to pay beginning on May 1 and at the beginning of each month thereafter a flat lease rental payment of $1,500 per month plus $10 payable at the end of each month for every automobile Waltham Center serviced during the month. National was responsible for payment of local property taxes. Knight was responsible for maintaining the facility in good working condition and the payment for all operating expenses. The 12-month lease agreement was automatically renewed unless a 30-day notice of cancellation was given by either party. The operating portion of the agreement required Knight to purchase all of his oil and lubricating supplies and equipment from National. For its part, National agreed to provide Knight with training materials, operating consulting services, and national advertising support. During April, Knight ordered for delivery on April 30 office furniture costing $6,000 that had a useful life of 10 years, deposited an additional $10,000 capital in the businesss new checking account, and paid $1,200 for a variety of 12-month insurance coverages beginning May 1. Knight opened the Waltham Center for business on May 1. On the same day, National deducted from Knights $40,000 deposit $35,650 for the opening oil and grease inventory ($6,320), uniforms and other operating supplies inventory ($4,130), and an equipment purchase down payment ($25,000). The total cost of the equipment was $75,000. In addition, National also deducted the May rental ($1,500) from the deposit. The remaining $4,350 of the deposit was held by National to apply against any future nonpayment of amounts due National. The $75,000 worth of grease and oil guns, hydraulic jacks, and other equipment Knight bought from National was Knights to keep. After applying the $25,200 deduction from his deposit toward this cost, Knight owed National $49,800 for the equipment. This balance was financed by giving National a noninterestbearing note payable on the first of the month at a rate of $830 a month for 60 months. A National sales representative told Knight the equipment was expected to have a useful life of five years. The sales representative also suggested the $75,000 equipment be depreciated on a group basis. That is, Knight would apply a single depreciation method and life to all of the equipment as if it was a single piece of equipment with no salvage value. This method, he explained, would reduce Knights bookkeeping costs. The business got off to a quick start. During the

aware the business owed employees payroll totaling $2,100 and utility companies $350. 4. Based on a physical count, Knight had determined on July 31 that the business had inventory costing $5,290 on hand. On numerous occasions, Knight and his family had serviced their personal cars at Waltham Center.1 As he prepared his assessment, Knight wondered if he should make some provision for possible nonpayment of the amounts owed to his business. In addition, he had $400 in checks in his office desk drawer from parking space renters prepaying their August rentals. As of July 31, Knight had not deposited these checks in the businesss bank account.

Questions 1. Prepare journal entries for the period May 1 to July 31. 2. Based on an examination of your journal entries, at the end of July, what is the balance, if any, of the following accounts: a. Capital b. Accumulated depreciation c. Prepaid assets d. Cash balance e. Accounts receivable f. Liabilities 3. Based on an examination of your journal entries, for the three-month period May 1 to July 31, what is the amount of the following: a. Withdrawals b. Cost of sales c. Parking revenues d. Lease expense e. Total revenues 4. How should Knight account for the $400 August parking checks? Possible bad debts? Family use of the Waltham Centers services? three-month period May through July, Knight and his staff serviced 2,340 cars. In addition to his service business, Knight was able to rent parking spaces to local citizens on a monthly basis between 7 p.m. and 7 a.m. Due to a local ordinance banning overnight street parking, these citizens were required to find offstreet parking. On August 2, Knight decided to assess how well he had done during the first three months of operations. To this end, he gathered the following information: 1. Bank account records showed deposits after March 1 of $108,600. According to notations on the checks, Knight believed $3,300 was generated by parking space rentals. The rest he assumed was oil and lubrication services revenue. 2. Bank account records showed payments for oil and grease inventory purchases from National totaling $8,230; part- and full-time employee payroll, $34,560; utilities, $1,700; miscellaneous expenses, $6,600; lease payment, $26,400; equipment payments, $2,490; and withdrawals by Knight of $4,500. 3. From personal knowledge, Knight knew that on July 31, he was owed $340 by overnight parkers and $730 from local merchants who used Waltham Center to service their delivery trucks. He was also