Question

Your client needs to prepare financial statements. He gives you the following information. He provides you some dates but some dates he does not know but he does give you summarized information for the year total. The name of Joe’s new landscape business is “Yard of the Month.” Joe starts the business on May 1st, 2019 by contributing $7,500, tools valued at $4,800, and a tractor with a $7,000 book value and a $16,840 market value. Joe purchased inventory for resale on May 5 for $4,000 with terms of 2/10, n/30. Joe decided to use the perpetual inventory method. He also elected to use the net method to record credit purchases. Joe paid for half of the inventory on May 15 and the other half on June 10. He sold inventory with a cost of $870 on June 12 with terms of 1/15, n/40 with a gross profit percentage of 60%. Joe decided to use the gross method to record credit sales. The customer paid the full amount owed on June 25. Joe uses the straight-line method to record depreciation expense on the tractor, and uses the units of production method for the tools based on the number of landscape jobs performed. The tractor’s expected value at the end of its 4-year useful life is $1,000. The tools will be useful for 240 landscape jobs with a zero expected value at the end. There were 25 landscape jobs performed in 2019. On October 31, Joe traded the old, drab tractor for a new, shiny tractor valued at $24,000. In addition to the new truck, Joe paid $1,000 cash and signed a 3-year, $10,000 note payable with stated interest of 6%. The new tractor has zero residual value and has a useful life of 5 years. Throughout the year, Joe mowed and mulched the year away and generated cash revenues of $17,500. He also had credit revenues of $15,000 and collected $5,000. Joe does not offer discounts on credit revenues. Joe tells you that he expects bad debts of 3% of total credit revenues.

REQUIRED: 1. Prepare all needed journal entries including year-end adjusting entries. 2. Post journal entries to T-accounts and calculate account balances 3. Prepare an income statement in good form 4. Prepare a balance sheet in good form

Answer 1

Date	General Journal	Debit	Credit
1-May	Cash	7,500.00
	Tools	4,800.00
	Tractor	16,840.00
	Capital		29,140.00
5-May	Purchases	4,000.00
	Account Payable		4,000.00
10-Jun	Account Payable	2,000.00
	Cash		2,000.00
15-May	Account Payable	2,000.00
	Cash		1,960.00
	Discount Received		40.00
12-Jun	Account Receivable	2,175.00
	Sales		2,175.00
25-Jun	Cash	2,153.25
	Discount	21.75
	Account Receivable		2,175.00
31-Oct	Depreciation on Tractor	1,980.00
	Accumulated Depreciation on Tracker		1,980.00
31-Dec	Depreciation on Tools	500.00
	Accumulated Depreciation on Tools		500.00
31-Oct	Accumulated Depreciation on Tracker	1,980.00
	Tractor		1,980.00
31-Oct	New Tractor	24,000.00
	Loss on Sales of Old Tractor	1,860.00
	Cash		1,000.00
	Tractor		14,860.00
	Note Payable		10,000.00
31-Dec	Depreciation on New Tractor	800.00
	Accumulated Depreciation on New Tractor		800.00
31-Dec	Cash	17,500.00
	Sales		17,500.00
31-Dec	Account Receivable	15,000.00
	Sales		15,000.00
31-Dec	Cash	5,000.00
	Account Receivable		5,000.00
31-Dec	Bad Debts Expense	450.00
	Allowance for Bad & Doubtful Debts		450.00
31-Dec	Interest on Notes Payable	100.00
	Interest Payable		100.00

Income Statement	Amount/Calculations	Total Amount
Sales Revenue		$     34,675.00
Total Cost of Goods Sold	Sales Revenue - Gross Profit	$     13,870.00
Gross Profit	60% of Sales	$     20,805.00
Depreciation on Tractor		$       1,980.00
Depreciation on Tools		$          500.00
Depreciation on New Tractor		$          800.00
Discount		$            21.75
Loss on Sales of Old Tractor		$       1,860.00
Bad Debts Expense		$          450.00
Interest on Note Payable		$          100.00
Total Operating Expenses		$       5,711.75
Discount Received		40.00
Net Income	Gross Profit - Total Operating Expenses + Discount Received	$     15,133.25