Chapter 4, Problem 4.6E

Exercise 4.6

LO 2. 6, 7

Record transactions and calculate financial statement amounts The following are the transactions relating to the formation of Cardinal Mowing Services, Inc., and its first month of operations. Prepare an answer sheet with the columns shown. Record each transaction in the appropriate columns of your answer sheet. Show' the amounts involved and indicate how each account is affected (+ or -). After all transactions have been recorded, calculate the total assets, liabilities, and stockholders’ equity at the end of the month and calculate the amount of net income for the month.

1. The firm was organized and the initial stockholders invested cash of $6,000.
2. The company borrowed $9,000 from a relative of one of the initial stockholders; a short-term note was signed.
3. Two zero-turn lawn mowers costing $3,800 each and a professional trimmer costing $ 1,300 were purchased for cash. The original list price of each mower was $5,200, but a discount was received because the seller was having a sale.
4. Gasoline, oil, and several packages of trash bags were purchased for cash of $900.
5. Advertising flyers announcing the formation of the business and a newspaper ad were purchased. The cost of these items, $ 1,700, will be paid in 30 days.
6. During the first two weeks of operations, 47 lawns were mowed. The total revenue for this work was $7,050; $4,650 was collected in cash, and the balance will be received within 30 days.
7. Employees were paid $4,200 for their work during the first two weeks.
8. Additional gasoline, oil, and trash bags costing $ 1,100 were purchased for cash.
9. In the last two weeks of the first month, revenues totaled $9,200, of which $3,750 was collected.
10. Employee wages for the last two weeks totaled $5,100; these will be paid during the first week of the next month.
11. It was determined that at the end of the month the cost of the gasoline, oil, and trash bags still on hand was $300.
12. Customers paid a total of $1,500 due from mowing services provided during the first two weeks. The revenue for these services was recognized in transaction f.
Answer sheet:

Assets = Liabilities + Stockholders' equity

Accounts  Notes Accounts Paid-In Retained

Transaction Cash + Receivable + Supplies + Equipment = Payable + Payable + Capital + Earnings + Revenues - Expenses

Optional continuation of Exercise 4.6

Prepare an income statement and balance sheet After you have completed parts a through 1 in Exercise 4.6, prepare an income statement for Cardinal Mowing Services, Inc., for the month presented and a balance sheet at the end of the month using the captions shown on the answer sheet.