Question

At the beginning of the summer, Brent Davis was looking for a way to earn money to pay for his college tuition in the fall. He decided to start a lawn service business in his neighborhood. To get the business started, Brent used $3,000 from his savings account to open a checking account for his new business, Emerald Lawn Care. He purchased two used power mowers and various lawn care tools for $1,000, and paid $1,800 for a second-hand truck to transport the mowers.

Several of his neighbors hired him to cut their grass on a weekly basis. He sent these customers monthly bills. By the end of the summer, they had paid him $2,400 in cash and owed him another $1,200. Brent also cut grass on an as-needed basis for other neighbors who paid him $2,000.

During the summer, Brent spent $400 for gasoline for the truck and mowers. He paid $2,000 to a friend who helped him on several occasions. An advertisement in the local paper cost $400. Now, at the end of the summer, Brent is concerned because he has only $1,800 left in his checking account. He says, “I worked hard all summer and have only $1,800 to show for it. It would have been better to leave the money in the bank.”

Required:
Prepare an income statement, a statement of owner’s equity, and a balance sheet for Emerald Lawn Care.

Answer 1

for formulas and calculations, refer to the image below -