Question

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 the following 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 ; pick p repairs, $ 250 ; mower repair, ; 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:
(a) Prepare a quarterly income statement for James Cook Lawn Service for the months June, July, and August. Use the following main captions: Revenues from Services, Expenses, and Net Income. Assume that the company will not be subject to income tax.

Answer 1

He made the decision to try the lawn care business for three months because he was unable to find a job with a suitable compensation. James spent $1,160 on a used pickup truck on June 1 after researching the market. He painted "James Cook Lawn Service, Phone 471-4487" on each door. Additionally, he spent $680 on tools, trimmers, and mowers. He signed a note payable agreeing to pay the $2,520 borrowed plus interest of $65 at the end of the three months in order to purchase these products (ending August 31). We can determine James' profit for the summer

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