Question

Suppose you start a lawn mowing business. Some venture capitalists give you $40,000 in exchange for stock in your company. You buy equipment for your business at a total cost of $10,000. You pay 30% down and finance the remainder with a note payable. A truck is necessary to haul the equipment to the various jobs. You acquire this at a cost of $15,000; $2,000 down and a note for the remaining $13,000. You find a garage to lease to store your equipment and truck. You have to pay 3 months in advance. The total check for the rental is $6,000. A final expenditure is made to acquire office supplies so you’ll be able to bill your customers once you provide them a service. You spend $1,000 on office supplies.

After your first few hectic days in your new venture, someone asks to see a balance sheet for your company.

Requirement 1:

Prepare a balance sheet that indicates your financial position based on the above transactions. (Use the attached template, or create your own Excel workbook.)

Additional Information:

During the month: (Normal Transactions)

1. Mowed lawns and collected at the time of service $3,000
2. Purchased gas for the lawn mowers of $100
3. Paid Wages of $1,000
4. Paid Insurance of $200
5. A customer was going out of town next month and sent $80 in advance payment.
6. Mowed lawns and billed the customers on account for $220.
7. Paid dividends to the shareholders of $500.

At end of month: (Adjusting Entries)

1. One month of rent had expired
2. $200 of office supplies had been used
3. $1,000 of equipment had depreciated
4. $200 of interest had accrued which will be payable the next period
5. All the gas for the lawn mowers was used; and all the cost of the insurance had expired

Answer 1

Adjusted Trial Balance End of Month
Account Titles	Debit	Credit
	$	$
Cash	29,280
Accounts Receivable	220
Office Supplies	800
Prepaid Rent	4,000
Equipment	25,000
Accumulated Depreciation		1,000
Unearned Revenue		80
Interest Payable		200
Note Payable		20,000
Common Stock		40,000
Dividends	500
Service Revenue		3,220
Wages Expense	1,000
Gas Expense	100
Rent Expense	2,000
Insurance Expense	200
Office Supplies Expense	200
Interest Expense	200
Depreciation Expense	1,000
Totals	$ 64,500	$ 64,500

Balance Sheet End of Month
Assets	$	$	Liabilities and Stockholders' Equity	$	$
Cash	29,280		Unearned Revenue	80
Accounts Receivable	220		Interest Payable	200
Office Supplies	800		Total Current Liabilities		280
Prepaid Rent	4,000		Notes Payable		20,000
Total Current Assets		34,300	Total Liabilities		20,280
Property Plant and Equipment			Stockholders Equity
Equipment, net		24,000	Common Stock	40,000
			Retained Earnings	(1,980)	38,020
Total Assets		$ 58,300	Total Liabilities and Stockholders' Equity		$ 58,300

Workings:

Cash Account
Common Stock	40,000	3,000	Equipment
Revenue	3,000	2,000	Equipment
Unearned Revenue	80	6,000	Prepaid Rent
		1,000	Office Supplies
		100	Gas
		1,000	Wages
		200	Insurance
		500	Dividends
Ending Balance	29,280