Group Project
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.
As a team, prepare the income statement of Maltbee Lawn Service for the four months May through August. Prepare the classified balance sheet of Maltbee Lawn Service at August 31.
Please add your file.
Next, as a small group discuss the following. Was Maltbee's summer work successful? Give the reason for your answer. What are the steps in the accounting cycle?
Please add your file.
Points Possible: 150
Date Due: Sunday, Nov 29, 2009
Objective: Prepare an Income Statement, Owner's Equity Statement, and Balance Sheet.
Submitted Files: Submit Assignment
Score: N/A
Instructor Comments: No comments have been made
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To prepare the income statement for Maltbee Lawn Service for the months of May through August, we need to calculate the revenues, expenses, and net income for the business during this period.
1. Revenues:
- The business collected $4,250 from customers during the summer.
2. Expenses:
- Doug paid his employees $1,900.
- He also paid $400 for supplies.
- He spent $50 on remaining supplies (gasoline, weedeater cord, etc.).
- He paid $600 for the mower lease.
- He spent $300 to repair a mower.
3. Calculate the net income:
- To calculate the net income, we subtract the expenses from the revenues.
- Net Income = Revenues - Expenses
Now, let's calculate the net income:
Revenues: $4,250
Expenses:
- Supplies: $400
- Remaining supplies: $50
- Employee wages: $1,900
- Mower lease: $600
- Mower repair: $300
Expenses Total: $3,250
Net Income = Revenues - Expenses Total
Net Income = $4,250 - $3,250
Net Income = $1,000
The net income for Maltbee Lawn Service for the four months from May through August is $1,000.
Now, let's prepare the classified balance sheet of Maltbee Lawn Service at August 31. A classified balance sheet categorizes assets and liabilities into current and non-current sections.
1. Identify the assets:
- Cash balance in the checkbook: $690
- Amounts owed by customers: $500
- Remaining supplies: $50
- Value of the trailer (1/3 of its original cost): $100 (300/3)
- Total Assets: $1,340 (690 + 500 + 50 + 100)
2. Identify the liabilities:
- Amount owed to employees: $200
- Total Liabilities: $200
3. Calculate the Owner's Equity:
- The initial investment in the business: $1,000 (600 loan + 400 own money)
- Net Income: $1,000
- Less: Withdrawals (cash withdrawals by Doug): $460
- Total Owner's Equity: $1,540 (1,000 + 1,000 - 460)
Now, let's prepare the classified balance sheet:
Maltbee Lawn Service
Classified Balance Sheet
As of August 31
Assets:
Current Assets:
- Cash: $690
- Accounts Receivable: $500
- Remaining Supplies: $50
- Total Current Assets: $1,240
Non-Current Assets:
- Trailer: $100
Total Assets: $1,340
Liabilities:
- Amount owed to employees: $200
Owner's Equity:
- Initial Investment: $1,000
- Net Income: $1,000
- Less: Withdrawals: $460
- Total Owner's Equity: $1,540
Total Liabilities and Owner's Equity: $1,740 (200 + 1,540)
Therefore, the classified balance sheet of Maltbee Lawn Service at August 31 is as follows:
Assets:
Current Assets:
- Cash: $690
- Accounts Receivable: $500
- Remaining Supplies: $50
- Total Current Assets: $1,240
Non-Current Assets:
- Trailer: $100
Total Assets: $1,340
Liabilities:
- Amount owed to employees: $200
Owner's Equity: $1,540
Total Liabilities and Owner's Equity: $1,740
Now, as a small group, let's discuss whether Maltbee's summer work was successful and outline the steps in the accounting cycle.