Reference no: EM13503938

Scenario 1

Deagan formed a lawn service business as a summer job. To start the business on 1 May, he deposited $1,000 in a new bank account in the name of the proprietorship. The $1,000 consisted of a $600 loan from his father and $400 of his own money. Deagan rented lawn equipment, purchased supplies, and hired fellow students to mow and trim his customer's lawns.

At the end of each month, Deagan mailed bills to his customers. On August 31, he was ready to dissolve the business and return to University for the next semester. As he was so busy, he kept few records other than his cheque book and a list of amounts owed to him by customers.

At 31 August, Deagan's cheque book shows a balance of $690, and his customers still owe him $500. During the summer, he collected $4,250 from customers. His cheque book lists payments for supplies totalling $400, and he still has fuel, whipper snapper cord, and other supplies that cost a total of $50. He paid his employees $1,900, and he still owes them $200 for the final week of the summer.

Deagon rented some equipment from Sea Machine Shop. On 1 May, he signed a six-month lease on mowers and paid $600 for the full lease period. Sea will refund the unused portion of the prepayment if the equipment is in good shape. In order to get the refund, Deagan has kept the mowers in excellent condition. In fact, he had to pay $300 to repair a mower.

To transport employees and equipment to jobs, Deagan used a trailer that he bought for $300. He figures that the summer's work used up one-third of the trailer's service potential. The business cheque book lists a payment of $460 for cash withdrawals by Deagan during the summer. Deagan paid his father back during August.

Required

a) Prepare the income statement of Deagan Lawn Service for the four months May through August.
b) Prepare the classified balance sheet of Deagan Lawn Service at 31 August.
c) Was Deagan's summer work successful? Give the reason for your answer.