John Sanderson formed a lawn service business, Sanderson Lawn Service, as a summer job. To start the business this year on May 1, he deposited $1,000 in a new bank account in the name of the proprietorship. The $1,000 consisted of a $600 loan from his father and $400 of his own money, so John invested $400 of capital in the business.
John rented lawn equipment, purchased supplies, and hired high school students to mow and trim his customer’s lawns.
At the end of each month, John mailed bills to his customers. On August 31, he was ready to dissolve the business and return to university for the fall semester. Because he had been so busy, he had kept few records other than his chequebook and a list of amounts owed to him by customers.
At August 31, John’s chequebook shows a balance of $2,000, and his customers still owe him $750. During the summer, he collected $5,500 from customers. His chequebook lists payments for supplies totalling $400, and he still has gasoline, weedeater cord, and other supplies that cost a total of $50. He paid his employees $1,800, and he still owes them $300 for the final week of the summer.
John rented some equipment from Ludwig Tool Ltd. On May 1, the business signed a six- month lease on mowers and paid $600 for the full lease period. Ludwig will refund the unused portion of the prepayment if the equipment is in good shape. In order to get the refund, John has kept the mowers in excellent condition. In fact, he had to pay $300 to repair a mower that ran over a hidden tree stump.
To transport employees and equipment to jobs, John used a trailer that the business bought for $300. He figures that the summer’s work used up one-third of the trailer’s service potential. The business chequebook lists an expenditure of $500 for cash withdrawals by John during the summer. John paid his father back during August.
1. Prepare the income statement and the statement of owner’s equity of Sanderson Lawn Service for the four months May through August.
2. Prepare the classified balance sheet of Sanderson Lawn Service at August 31.
3. Was John’s summer work successful? Give the reason for your answer.
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