Matt Davis formed a lawn service company as a summer job. To start the business on May 1, he deposited $1,000 in a new bank account in the name of the corporation. The $1,000 consisted of an $800 loan from his father and $200 of his own money. The corporation issued 200 shares of common stock to Davis. Davis rented lawn equipment, purchased supplies, and hired high school students to mow and trim his customers lawns. At the end of each month, Davis mailed bills to his customers. On August 31, Davis was ready to dissolve the business and return to Duke University for the fall semester. Because he had been so busy, he had kept few records other than his checkbook and a list of amounts owed by customers. At August 31, Daviss checkbook shows a balance of $1,390, and his customers still owe him $560. During the summer, he collected $5,150 from customers. His checkbook lists payments for supplies totaling $400, and he still has gasoline, weedeater cord, and other supplies that cost a total of $50. He paid his employees wages of $1,900, and he still owes them $200 for the final week of the summer. Davis rented some equipment from Ludwig Tool Company. On May 1, he signed a 6 month lease on mowers and paid $600 for the full lease period. Ludwig will refund the unused portion of the prepayment if the equipment is in good shape. To get the refund, Davis has kept the mowers in excellent condition. In fact, he had to pay $300 to repair a mower that ran over a hidden tree stump. To transport employees and equipment to jobs, Davis used a trailer that he bought for $300. He figures that the summers work used up one-third of the trailers service potential. The business checkbook lists an expenditure of $460 for dividends paid to Davis during the summer. Also, Davis paid his father back during the summer.
1. Prepare the income statement of Davis Lawn Service, Inc., for the 4 months May through August. The business is not subject to income tax.
2. Prepare the classified balance sheet of Davis Lawn Service, Inc., at August 31.