Assume that you are the president of Propane Company. At the end of the first year (December 31, 2009) of operations, the following financial data for the company are available:
Using the financial statement exhibits in the chapter as models:
Prepare a summarized income statement for the year 2009.
Prepare a statement of retained earnings for the year 2009.
Prepare a balance sheet at December 31, 2009.
P1-1 Preparing an Income Statement, Statement of Retained Earnings, and Balance Sheet (AP1–1) LO1 <a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/free/0073324833/excel_icon.jpg','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (K)</a> www.mhhe.com/libby6e
During the summer between her junior and senior years, Susan Irwin needed to earn sufficient 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 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:
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.
Do you see a need for one or more additional financial reports for this company for 2011 and thereafter? Explain.
P1-2 Analyzing a Student's Business and Preparing an Income Statement (AP1–2) LO1 <a onClick="window.open('/olcweb/cgi/pluginpop.cgi?it=jpg::::/sites/dl/free/0073324833/excel_icon.jpg','popWin', 'width=NaN,height=NaN,resizable,scrollbars');" href="#"><img valign="absmiddle" height="16" width="16" border="0" src="/olcweb/styles/shared/linkicons/image.gif"> (K)</a> www.mhhe.com/libby6e
Ace Trucking Company was organized on January 1, 2010. At the end of the first quarter (three months) of operations, the owner prepared a summary of its activities as shown in the first row of the following tabulation:
For each of the six transactions given in this tabulation, enter what you consider the correct amounts. Enter a zero when appropriate. The first transaction is illustrated.
For each transaction, explain the basis for your dollar responses.
P1-3 Comparing Income with Cash Flow (A Challenging Problem) (AP1–3) LO1
On January 1, 2009, three individuals organized West Company as a corporation. Each individual invested $10,000 cash in the business. On December 31, 2009, they prepared a list of resources owned (assets) and a list of the debts (liabilities) to support a company loan request for $70,000 submitted to a local bank. None of the three investors had studied accounting. The two lists prepared were as follows:
Which of these items do not belong on the balance sheet? (Bear in mind that the company is considered to be separate from the owners.)
What additional questions would you raise about the measurement of items on the list? Explain the basis for each question.
If you were advising the local bank on its loan decision, which amounts on the list would create special concerns? Explain the basis for each concern and include any recommendations that you have.
In view of your responses to (1) and (2), what do you think the amount of stockholders' equity (i.e., assets minus liabilities) of the company would be? Show your computations.
P1-4 Evaluating Data to Support a Loan Application (A Challenging Problem) LO1
