Transactions and Financial Statements for a Proprietorship

• Lisa Duncan, a junior in college, has been seeking ways to earn extra spending money. As an active sports enthusiast, Lisa plays tennis regularly at the Phoenix Tennis Club, where her family has a membership. The president of the club recently approached Lisa with the proposal that she manage the clubs tennis courts. Lisas primary duty would be to supervise the operation of the clubs four indoor and ten outdoor courts, including court reservations.

In return for her services, the club would pay Lisa $325 per week, plus Lisa could keep whatever she earned from lessons. The club and Lisa agreed to a one-month trial, after which both would consider an arrangement for the remaining two years of Lisas college career.

As a friend and accounting student, you have been asked by Lisa to aid her in recording the venture. Also assume that Lisa Duncan could earn $10 per hour working 30 hours a week as a waitress. You will also evaluate which of the two alternatives, working as a waitress or operating Serve-N-Volley, would provide Lisa with the most income per month.

On this basis, organized Serve-N-Volley creating the following Chart of Accounts:

Cash, Supplies, Accounts Payable, Lisa Duncan Capital=Common Stock, Lisa Duncan Drawing =Dividends, Fees Earned, Salaries Expense, Rent Expense, Supplies Expense, Miscellaneous Expense.

During September 20Y2, Lisa managed the tennis courts and entered into the following transactions:

• 1. 9/1 Opened a business account by contributing $950.
  2. 9/1 Paid $300 for tennis supplies (practice tennis balls, etc.).
  3. 9/1 Paid $275 for the rental of video equipment to be used in offering lessons during September.
  4. 9/1 Arranged for the rental of two ball machines during September for $250. Paid $100 in advance, with the remaining $150 to be paid October 1.
  5. 9/30 Received $1,750 for lessons given during September.
  6. 9/30 Received $600 in fees from the use of the ball machines during September.
  7. 9/30 Paid $800 for salaries of part-time employees who answered the telephone and took reservations while Lisa was giving lessons.
  8. 9/30 Paid $290 for miscellaneous expenses.
  9. 9/30 Received $1,300 (325 per week) from the club for managing the tennis courts during September.
  10. 9/30 Determined that the cost of supplies on hand at the end of the month totaled $180; therefore, the cost of supplies used was $120.
  11. 9/30 Withdrew $400 (similar to Dividend) for personal use on September 30.

• Journalize entries for transactions (a) through (k), using the Chart of Accounts:

Cash, Supplies, Accounts Payable, Lisa Duncan Capital=Common Stock, Lisa Duncan Drawing =Dividends, Fees Earned, Salaries Expense, Rent Expense, Supplies Expense, Miscellaneous Expense.

• Prepare T accounts, using the account titles in (1). Post the journal entries to these accounts, placing the appropriate letter to the left of each amount to identify the transactions. Determine the account balances, after all posting is complete.

• Prepare an unadjusted trial balance as of August 31, 20Y7.

• Prepare Financial Statements September 30, including a:

• Income Statement (Revenue Expenses).

• Statement of Owners Equity for September. The statement of owners equity for a proprietorship is similar to the statement of stockholders equity for a corporation. The balance of the owners capital as of the beginning of the period is listed first. Any investments made by the owner during the period are then listed, the net income is added (a net loss would be subtracted), and any owners withdrawals are subtracted to determine the increase (decrease) in owners equity for the period. This increase (decrease) is then added to (subtracted from) the beginning owners equity to determine the owners equity as of the end of the period.

• Balance Sheet as of September 30.

• Evaluate which of the two alternatives, working as a waitress or operating Serve-N-Volley, would provide Lisa with the most income per month.

• Discuss any other factors that you believe Lisa should consider before discussing a long-term arrangement with the Phoenix Tennis Club.