Jeff Smith (Smith) formed a lawn service company as a summer job on his break from college. To start the business on May 1, he deposited $2,000 in a new bank account in the name of the corporation. The $2,000 consisted of a $1,600 loan his father made to the business and $400 of his own money he invested in the business. The corporation issued 200 shares of common stock to Smith in exchange for the $400 investment.

Smith rented law equipment, purchased supplies, and hired high school students to mow and trim his customers lawns. At the end of each month, Smith mailed bills to his customers. On August 31, Smith was ready to dissolve the business and return to college 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, Smiths checkbook shows a balance of $2,040, and his customers still owe him $600. During the summer, he collected $5,600 from customers. His checkbook lists payments for supplies totaling $400, and he still has gasoline, weed eater cord, and other supplies that cost of total of $50. He paid his employees wages of $1,900, and he still owes them $200 for the final week of the summer.

Smith rented some equipment from Lawn Tools R Us. On May 1, he signed a six-month lease on mowers and paid $600 for the full lease period. Lawn Tools R Us will refund the unused portion of the prepayment if the equipment is in good shape. To get the refund, Smith 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, Smith 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 expenditures of $460 for dividends paid to Smith during the summer. Also, Smith paid his father back during the summer (assume no interest was paid on the loan).

Jeff Smith does not have any prior accounting experience. He asks you to look over the records to help him determine if the business was successful and if he should start the business again when he returns from college next summer.

Requirements

a) Was this business successful?

b) Write the journal entries for the all the transactions (except adjusting entries) listed in the scenario above.

c) Using the journal entries prepared in requirement b above, post the journal entries to the ledger (T-accounts).

d) Using the T-accounts in requirement c above, prepare an unadjusted trial balance.

e) Prepare the appropriate adjusting journal entries and post to the ledger.

f) Prepare an adjusted trial balance.

g)Using the adjusted trial balance prepare the income statement for Smith Lawn Services. Inc., in good form for the four month period ending August 31. Assume the business is not subject to income tax.

h) Using the adjusted trial balance, prepare the Statement of Retained Earnings for the four month period ending August 31.

i) Using the adjusted trial balance, prepare the August 31 classified balance sheet of Smith Lawn Services Inc. in good form.

j) Prepare the closing entries.

k) Post the closing entries to the ledger.

l) Prepare a post-closing trial balance.