The summer after finishing her junior year in college, Beth Murphy started a lawn service business in her neighborhood. On June 1, she deposited $2,700 in a new bank account in the name of her corporation. The $2,700 consisted of a $1,000 loan from her father and $1,700 of her own money. In return for her investment, Murphy issued 1,700 shares of $1 par value common stock to herself.

Using the money in this checking account, Murphy rented lawn equipment, purchased supplies, and hired local high school students to mow and trim the lawns of neighbors who had agreed to pay her for the service. At the end of each month, she mailed bills to her customers.

On August 31, Murphy was ready to dissolve her business and go back to school for the fall term. Because she had been so busy, she had not kept any records other than her checkbook and a list of amounts owed by customers.

Her checkbook had a balance of $3,520, and her customers owed her $875. She expected these customers to pay her during September. She planned to return unused supplies to the Lawn Care Center for a full credit of $50. When she brought back the rented lawn equipment, the Lawn Care Center also would return a deposit of $200 she had made in June. She owed the Lawn Care Center $525 for equipment rentals and supplies. In addition, she owed the students who had worked for her $100, and she still owed her father $700. Although Murphy feels she did quite well, she is not sure just how successful she was. You have agreed to help her find out.

1. Prepare one balance sheet dated June 1, 2011 and another dated August 31, 2011 for Murphy Lawn Services, Inc.

2. Using information that can be inferred from comparing the balance sheets, write a memorandum to Murphy commenting on her company’s performance in achieving profitability and liquidity. (Assume that she used none of the company’s assets for personal purposes.) Also, mention the other two financial statements that would be helpful to her in evaluating these business goals.