Question

Take the following transactions through the accounting cycle. The problem covers the month of January only. You should do the following:

1/1 Bill Jones started a new business called Bill’s Landscaping Service. Inc. The company issued 300,000 shares of common stock, par $1, for $300,000. The $300,000 was deposited in a bank account.

1/1 Purchased a truck for $40,000, no salvage value, useful life 5 years, for cash. 1/2 Purchased a 3 year insurance policy for $7,200 cash. 1/3 Purchased land $10,000; paid $ 8,000 down, gave a non-interest bearing note payable for the balance

1/15 Signed a contract to perform landscaping for $48,000. The job will take 2 months and we are paid at the beginning of the job. We begin work on the job immediately.

1/15 Signed a contract to perform landscaping for $40,000. The job will take 2 ½ months and we are paid at the end of the job. We begin work on the job immediately.

1/15 Purchased a computer for $ 4,800 cash, no salvage value, life 4 years.

1/20 Purchased office supplies for $ 2,000 on account

Additional Information: On 1/31, owed $800 wages and office supplies on hand totaled $ 1,500. Prepare a trial balance.

Question: Prepare an Income Statement and Balance sheet in good form.

Answer 1

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Notes relating to profit and loss account:

Notes: 1. Landscaping services income calculation:

On 15/01 agreed for contract of 48000 which will be completed in 2 months. It means it should be completed in 15+28+15= 58 days. Hence income for the month of January is 48000*15/58= 12413.

On 15/01 agreed for contract of 40000 which will be completed in 2.5 months. It means it should be completed in 15+28+31= 74 days. Hence income for the month of January is 40000*15/74= 8108.

Hence total is 20521.

Notes: 2. Insurance policy charges:

Total 2000 is for 3 years. Hence for one month it is 2000/36= 200

Notes: 3. Office supplies expenses:

Total office supplies purchased is 2000. Closing stock is 1500. Hence expenses is 500

Notes relating to balance sheet:

Notes: 1. Landscaping service advance:

Out of 48000, only worth 12413 is completed. Hence balance is advance, hence current liability.

Notes: 2. Loans and advances:

Out of 7200 insurance policy, 200 is January expenses. Hence 7000 is advance.

Notes: 3. Sundry debtors:

Only worth 8108 of landscaping service completed and hence recognized in profit and loss account. This amount is receivable. Hence shown in debtors.

Notes: 3. Bank Balance

Notes: 4. Depreciation is not calculated and provided.