Analyzing a Student's Business and Preparing an Income Statement (AP1-2)During the sum...

Analyzing a Student's Business and Preparing an Income Statement (AP1-2)

During the summer between her junior and senior years, Susan Irwin needed to earn sufficient pj money for the coming academic year. Unable to obtain a job with a reasonable salary, she decided to try the lawn care business for three months. After a survey of the market potential, Susan bought Dm/libby6e a used pickup truck on June 1 for $1,500. On each door she painted “Susan's Lawn Service, Phone 471-4487.” She also spent $900 for mowers, trimmers, and tools. To acquire these items, she borrowed $2,500 cash by signing a note payable promising to pay the $2,500 plus interest of $65 at the end of the three months (ending August 31).

At the end of the summer. Susan realized that she had done a lot of work, and her bank account looked good. This fact prompted her to become concerned about how much profit the business had earned.

A review of the check stubs showed the following: Bank deposits of collections from customers totaled $12,300. The following checks had been written: gas, oil, and lubrication, $940; pickup repairs, $250; mower repair, $110; miscellaneous supplies used, $80; helpers, $4,200; payroll taxes, $190; payment for assistance in preparing payroll tax forms, $25; insurance, $125; telephone, $110; and $2,565 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 her $700 for lawn services rendered and that she owed $ 180 for gas and oil (credit card charges). She 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 Susan’s Lawn Service for the months June, July, and August 2011. Use the following main captions: Revenues from Services, Expenses, and Net Income. Because this is a sole proprietorship, the company will not be subject to income tax.

2. Do you see a need for one or more additional financial reports for this company for 2011 and thereafter? Explain.