During the summer between his junior and senior years, James Cook needed to earn sufficient money for the coming academic year. Unable to obtain a job with a reasonable salary, he decided to try the lawn care business for three months. After a survey of the market potential, James bought a used pickup truck on June 1 for $1,800. On each door he painted "James Cook Lawn Service, Phone 471-4487." He also spent $900 for mowers, trimmers, and tools. To acquire these items, he borrowed $3,000 cash by signing a note payable promising to pay the $3,000 plus interest of $78 at the end of the three months (ending August 31).
By the end of the summer, James had done a lot of work and his bank account looked good. This prompted him to wonder how much profit the business had earned.
A review of the check stubs showed the following: Bank deposits
of collections from customers totaled $15,000. The following checks
had been written: gas, oil, and lubrication, $1,050; pickup
repairs, $250; mower repair, $110; miscellaneous supplies used,
$80; helpers, $5,400; payroll taxes, $190; payment for assistance
in preparing payroll tax forms, $25; insurance, $125; telephone,
$110; and $3,078 to pay off the note including interest (on August
31). A notebook kept in the pickup, plus some unpaid bills,
reflected that customers still owed him $700 for lawn services
rendered and that he owed $180 for gas and oil (credit card
charges). He estimated that the cost for use of the truck and the
other equipment (called depreciation) for three months amounted to
$600.
Required:
1. Prepare a quarterly income statement for James Cook Lawn Service for the months June, July, and August. Assume that the company will not be subject to income tax.
JAMES COOK LAWN SERVICE | ||
INCOME STATEMENT | ||
Revenues | ||
Collection from customers | 15000 | |
Money owed from customers | 700 | |
Total Revenues | 15700 | |
Expenses | ||
Gas,oil and Lubrication | 1050 | |
Pickup Repairs | 250 | |
Mower Repair | 110 | |
miscellaneous supplies used | 80 | |
helpers | 5400 | |
payroll taxes | 190 | |
payment for assistance in preparing payroll tax forms | 25 | |
insurance | 125 | |
telephone | 110 | |
Interest on Note | 78 | |
gas and oil (credit card charges) | 180 | |
depreciation | 600 | |
Total Expenses | 8198 | |
Net Income | 7502 |
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During the summer between his junior and senior years, James Cook needed to earn sufficient money...