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 $1,120. On each door he painted "James Cook
Lawn Service, Phone 471-4487." He also spent $880 for mowers, trimmers,
and tools. To acquire these items, he borrowed $2,580 cash by signing a note
payable promising to pay the $2,580 plus interest of $75 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 $12,600. The following checks
had been written: gas, oil, and lubrication, $1,080; pickup repairs, $340;
mower repair, $300; miscellaneous supplies used, $110; helpers, $5,700; payroll
taxes, $260; payment for assistance in preparing payroll tax forms, $30;
insurance, $145; telephone, $120; and $2,655 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 $830 for lawn services rendered and
that he owed $200 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 $660.
Required:
1. Prepare a quarterly income statement for James Cook Lawn
Service for the months June, July, and August. Assume that the company will not
be subject to income tax.
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