Question

Tony Star formed a lawn service business as a summer job in California. To start the business on Sept 1, 2017, he deposited $1,000 in a new bank account in the name of the business. The $1,000 consisted of a $600 loan from Bank One to his company, Star Lawn Mowing Service, and $400 of his own money. The company issued $400 of capital to Star. Star rented lawn equipment, purchased supplies, and hired other students to mow and trim customers’ lawns.

    At the end of each month, Star mailed bills to the customers. On December 31, he was ready to dissolve the business and return to university in January 2018. Because he was so busy, he kept few records other than the check book and a list of receivables from customers.

    At December 31, the business’s check book shows a balance of $2,000, and customers still owe $750. During the summer, the business collected $5,500 from customers. The business check book lists payments for supplies totalling $400, and it still has supplies that cost a total of $50. The business paid employees $1,800 and still owes them $300 for the final week of the summer.

    Star rented some equipment from Lamberg’s Mower Shop. On September 1, the business signed a six-month rental agreement on mowers and paid $600 for the full rental period in advance. Lamberg’s will refund the unused portion of the prepayment if the equipment is returned in good shape. In order to get the refund, Star has kept the mowers in excellent condition. In fact, the business had to pay $300 to repair a mower.

    To transport employees and equipment to jobs, Star used a van that the business bought for $300. The business estimates that the summer’s work used up one-third of the van’s service potential. The business check book lists a payment of $500 for cash withdrawals during the summer. The business paid the loan back during August. (Ignore any interest expense associated with the loan.)

Required:

Prepare the income statement and the statement of owner’s equity of Star Lawn Mowing Service for the four months starting September 1 through December 31, 2017. Subsequently prepare the balance sheet of Star Lawn Mowing Service at December 31, 2017.                                      

Answer 1

Income Statement:
Service Revenue	5500+750		6250
Less: Expenses:
Supplies	400-50	350
Salaries	1800+300	2100
Rental Expense	600/6*4	400
Repair Expense		300
Depreciation Van	300/3	100
Total Expenses			3250
Net Income			3000
Statement of Owner's Equity
Capital		400
Add: Net Income		3000
Less: Withdrawal		-500
Capital, Ending		2900
Balance Sheet
Cash		2000
Accounts Receivable		750
Supplies		50
Prepaid Rent		200
VAN	300-100	200
Total Assets		3200
Salaries Payable		300
Capital		2900
Total Equity and Liabilities		3200