Doug Maltbee formed a lawn service business as a summer job. To start the business 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. Doug rented lawn equipment, purchased supplies, and hired fellow students to mow and trim his customer's lawns.
At the end of each month, Doug mailed bills to his customers. On August 31, he was ready to dissolve the business and return to Louisiana State University for the fall semester. Because he was so busy, he kept few records other than his checkbook and a list of amounts owed to him by customers.
At August 31, Doug's checkbook shows a balance of $690, and his customers still owe him $500. During the summer, he collected $4,250 from customers. His checkbook lists payments for supplies totaling $400, and he still has gasoline, weedeater cord, and other supplies that cost a total of $50. He paid his employees $1,900, and he still owes them $200 for the final week of the summer.
Doug rented some equipment from Scholes Machine Shop. On May 1, he signed a six-month lease on mowers and paid $600 for the full lease period. Scholes will refund the unused potion of the prepayment if the equipment is in good shape. To get the refund, Doug has kept the mower in excellent condition. In fact, he had to pay $300 to repair a mower.
To transport employees and equipment to jobs, Doug used a trailer that he bought for $300. He figures that the summer's work used up one-third of the trailer's service potential. The business checkbook lists a payment of $460 for cash withdrawals by Doug during the summer. Doug paid his father back during August.
Revenues:
Service Revenue $5500
Less Expenses:
Salaries expenses 1800
Lease expenses 400
Repair expenses 300
Depreciation expense trailer 100
Loan expenses 600
EAN 2300
Robert Lawn Service
Statement of Owner’s Equity
August 31 XXXX
Investment by owner 400
Withdrawals (500)
EAN 2300
Owner’s equity August 31, 2200
Robert Lawn Service
Statement of Owner’s Equity
August 31 XXXX
Assets Liabilities
Cash 1200 (600+200+400) Accounts payable 450 (400+50)
Accounts receivable 750 Salaries payable 300
Trailer 200 (300-100) Owner’s equity capital 2200
TOTAL ASSETES 2150 TOTALS LIABILITIES+OWNER’S EQUITY 2950
To determine Doug Maltbee's net income for his lawn service business, we need to calculate his revenues and expenses.
1. Revenues:
- Doug collected $4,250 from customers during the summer.
2. Expenses:
- Supplies: The checkbook shows payments for supplies totaling $400, and Doug still has $50 worth of supplies. So, the total supplies expense is $400 + $50 = $450.
- Employee wages: Doug paid his employees $1,900 during the summer, and he still owes them $200. So, the total employee wages expense is $1,900 + $200 = $2,100.
- Equipment lease: Doug paid $600 for a six-month lease on mowers. Since he will receive a refund if the equipment is in good shape, this expense will be adjusted later.
- Equipment repair: Doug paid $300 to repair a mower.
3. Adjustments:
- Equipment lease refund: Since Doug will receive a refund for the unused portion of the equipment lease, we need to adjust this expense. As the lease was for six months and Doug used the equipment for four months (May, June, July, and August), two months' worth of lease expense will be refunded to him. So, the adjusted equipment lease expense is $600 - ($600/6 * 2) = $200.
- Trailer usage: Doug used the trailer for transportation during the summer. He estimates that the summer's work used up one-third of the trailer's service potential. Since the trailer cost $300, the usage expense for the summer is $300 * 1/3 = $100.
Now, let's calculate the net income:
Revenues: $4,250
Expenses:
- Supplies: $450
- Employee wages: $2,100
- Equipment lease adjustment: $200
- Equipment repair: $300
- Trailer usage: $100
Total expenses: $450 + $2,100 + $200 + $300 + $100 = $3,150
Net income (before considering withdrawals and loan repayment):
Revenues - Total expenses = $4,250 - $3,150 = $1,100
Note: The checkbook balance and the amounts owed by customers are not relevant to calculating net income and are not included.
To fully determine the net income, we need to consider the cash withdrawals by Doug and the repayment of the loan to his father. As the question doesn't provide additional information about the withdrawals and the repayment, we cannot include them in the calculation.