accounting

In-class task #2

1. Jack Roberts formed a lawn service business, Roberts Lawn Service, 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, so Jack invested $400 of capital in the business.

Jack rented lawn equipment, purchased supplies, and hired high school students to mow and trim his customer’s lawns.

At the end of each month, Jack 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 cheque book and a list of amounts owed to him by customers.

At August 31, Jack’s cheque book 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, weed-eater 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.

Jack 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, Jack 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, Jack 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 cheque book lists an expenditure of $500 for cash withdrawals by Jack during the summer. Jack paid his father back during August.

a. Prepare the income statement and the statement of owner’s equity of Roberts Lawn Service for the four months May through August. (Hints: Types of expenses are wages expense, rent expense, supplies expense, repair expense and amortization expense.)

b. Was Jack’s summer work successful? Give the reason for your answer.

2. From this list of balance sheet classifications, select the classification that is most closely associated with each of the accounts that follows, and place the letter for that classification in the space provided.

a = Current Asset

b = Current Liability

c = Noncurrent Asset

d = Noncurrent Liability

e = Owners' Equity

	1	Sales Revenue
	2	Interest Expense
	3	Mortgage Payable (due in five years)
	4	Prepaid Rent
	5	Interest Receivable
	6	Notes Receivable (due in two years)
	7	Income Taxes Payable
	8	Salaries Expense
	9	Interest Payable
	10	Long-term Investment
	11	Building
	12	Accounts Receivable
	13	Note Payable (due in 6 months)
	14	Utilities Expense
	15	Bond Payable (due after 1 year)

2