Stan Samuelson, a second–year university business student, had a hard time finding an enjoyable summer job that paid well. He decided to start his own business. He and two high school friends established a home repair company. Stan runs the business side of the operation while his two friends, Owen Saltz and Mort Schnitzler, do the majority of the home repairs. Stan fills in as needed.
A corporation was formed. It issued $1,000 of share capital to each student on June 1, 2015 for total cash consideration of $3,000. The three called the company Sam, Salt, and Schnitz Corp. (SSS). SSS agreed to rent a van from Jim Stephens for $200 per month; under this agreement, SSS was liable for all fuel and repair bills. After this transaction, the corporation was ready to begin business.
The business proved to be successful from the start. Stan spent most of his time promoting the business, making sales calls, and writing up estimates. He devoted little effort toward establishing an accounting system. He thought that SSS could get by with only a chequebook. So that all transactions would pass through the chequebook, Stan arranged with local businesses to pay all the corporation’s expenses by cheque.
On August 31, the students had completed their summer’s work and prepared to return to school. All payments from customers were received and all suppliers’ bills were paid. The students asked Owen’s sister, Amanda, to determine the financial position of SSS at August 31.
From the records, Amanda discovered that receipts from customers for the summer totalled $35,542. The repair materials bought for use by SSS amounted to $24,500, with $2,500 of unused material (paint, lumber, nails, and electrical fixtures) remaining; of these 80 per cent could be returned for full credit, while 20 per cent had to be expensed. Other expenses incurred were $75 for advertizing, and $375 for fuel and oil for the van. The three students paid themselves $1,500 each on August 31 for the summer. The bank balance for SSS on August 31 was $8,492. The unused supplies had not yet been returned. Amanda was still owed $300 for her work.
Required:
- Open general ledger T-accounts as needed and post the transactions. Ignore account numbers.
- Prepare an income statement and statement of changes in equity for the three months ended August 31, 2015 and a balance sheet at August 31, 2015.
- If each student worked 190 hours per month from June 1 through August 31, how successful have they been?
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