Paul Byrne, a first-year student in a business program in Toronto, was approached bya f riend offering to sell him his hot dog vending cart. The friend was going to be starting a permanent job in the summer so he no longer needed the cart. Paul decided to buy the cart as a way to make money to finance his education and learn how to manage a business at the same time.

Paul operated his business from late April, when the weather started to warm up, to early September. Paul was so busy running the business he had no time to keep any accounting records. So on September 10, after he had put away the cart until the next year, he sat down with all the data he had carefully collected in a shoebox throughout the summer. From the information in the shoebox he obtained the following:

a. On April 1 Paul opened a bank account in the name of his company Paul’s Dogs and deposited $3,500 from his bank account into the account. Paul decided he would operate the business as a proprietorship. (Remember, in a proprietorship the owners’ equity section of the balance sheet includes only a single account called owner’s equity or owner’s capital. This is different from a corporation where there will be a common shares account and a retained earnings account.)

b. Paul purchased the cart from his friend on April 8 for $2,400. He gave his friend

$1,500 in cash and promised to pay him the rest at the end of the summer. The cart was already four years old and Paul’s friend said it should be good for another three or four years, after which time it would probably be junk.

c. Paul took the cart to a repair shop and had the cart painted, serviced, and repaired.

Paul paid the shop $700 in cash.

d. Paul went to city hall and obtained a licence to operate his cart in the city. It cost

$750 and Paul paid with his debit card. The licence is valid for two years and expires at the end of the next calendar year.

e. During the summer Paul sold hot dogs and drinks for $22,750.

f. In late August Paul was asked to bring his cart to a softball tournament where he would be the official supplier of hot dogs to participants. The agreement was that Paul would keep track of the hot dogs and drinks he handed out to the players and send a bill to the tournament organizers. At the end of the tournament Paul delivered a bill for $1,615. The organizers said they would pay on September 20.

g. During the summer Paul bought hot dogs, buns, drinks, condiments, napkins, plastic cutlery, paper plates, and other supplies for $12,825. All of these items were paid for in cash.

h. At the end of the summer Paul had about $900 in non-perishable items stored in his basement at home (he had used $11,925 of the supplies he had bought).
1. On several days during the summer Paul was unable to operate the cart himself.
On those days he hired his brother to do it. During the entire summer Paul paid his brother $1,655 cash. As of today Paul still owes him $115.
j. During the summer Paul incurred $1,400 in other expenses. All of these were paid in cash.
k. On August 15 Paul withdrew $4,500 from the business to pay for tuition and other school-related costs.
l. On September 5 Paul paid his friend the $900 he owed him.

Required:

a. Enter each of the transactions onto an accounting equation spreadsheet. You can use a computer spreadsheet program or create a spreadsheet manually, although the computer spreadsheet will probably be easier because you will be able to correct mistakes more easily. Create a separate column on the spreadsheet for each account.

b. Provide explanations for each of your entries. You should explain why you have treated the economic events as you have (that is, why you have recorded an asset, liability, etc.).

c. Prepare a balance sheet as of September 10 and an income statement for the period ended September 10 from your spreadsheet. Make sure to make ac losing entry.

d. Explain why the financial statements you have prepared would be useful to Paul.

e. If Paul asked you for some feedback on his business from examining the financial statements, what would you be able to tell him?