(Using the accounting equation spreadsheet to record transactions and prepare financial statements, LO 1, 2, 5, 6) Paul Byrne is a first-year student in a business program in Toronto. Toward the end of the academic year he was approached by a friend who offered to sell him his hot dog vending cart. The friend was finishing his university studies and was going to be starting a permanent job in the summer, so he no longer needed the cart. Paul thought about the offer for a few days and decided to buy the cart. He thought that it would be 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, when it was time to get back to school. 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 throughout the summer about his business and placed in a shoebox. 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. He deposited $2,000 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 Capital Stock account and a Retained Earnings account.)

b. Paul purchased the cart from his friend on April 8 for $1,500. He gave his friend

$1,000 in cash and promised to pay him the rest at the end of the summer. The cart is already four years old and Paul’s friend says it should be good for another three or four years, after which time it will probably be junk.

c. Paul took the cart to a repair shop. He had the cart painted, serviced, and repaired. Paul paid the shop $300 in cash.

d. Paul went to city hall and obtained a license to operate his cart in the city. The license cost $250 and Paul wrote a cheque for that amount. The license 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 $15,750.

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 sent a bill to the organizers for $1,115. 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 $8,525. All of these items were paid for in cash.
h. At the end of the summer Paul had about $750 in non-perishable items stored in his basement at home (he had used $7,775 of the supplies he had bought).
i. On several days during the summer Paul was unable to operate the cart himself.
On those days he hired his brother to do it. For the entire summer Paul paid his brother $375. As of today Paul still owes him $75.
j. During the summer Paul incurred $1,000 in other expenses. All of these were paid in cash.
k. On August 15 Paul withdrew $1,500 from the business to pay for tuition and other school-related items.
1. On September 5 Paul paid his friend the $500 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 a closing 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 from your examination?