P1-2 (Algo) Analyzing a Student's Business and Preparing an Income Statement LO1-1
During the summer between his junior and senior years, James Cook needed to earn sufficient money for the coming academic year. Unable to obtain a job with a reasonable salary, he decided to try the lawn care business for three months. After a survey of the market potential, James bought a used pickup truck on June 1 for $1,300. On each door he painted "James Cook Lawn Service, Phone 471-4487." He also spent $790 for mowers, trimmers, and tools. To acquire these items, he borrowed $2,530 cash by signing a note payable promising to pay the $2,530 plus interest of $65 at the end of the three months (ending August 31).



By the end of the summer, James had done a lot of work and his bank account looked good. This prompted him to wonder how much profit the business had earned.



A review of the check stubs showed the following: Bank deposits of collections from customers totaled $12,900. The following checks had been written: gas, oil, and lubrication, $1,110; pickup repairs, $410; mower repair, $280; miscellaneous supplies used, $210; helpers, $5,100; payroll taxes, $380; payment for assistance in preparing payroll tax forms, $35; insurance, $185; telephone, $200; and $2,595 to pay off the note including interest (on August 31). A notebook kept in the pickup, plus some unpaid bills, reflected that customers still owed him $760 for lawn services rendered and that he owed $220 for gas and oil (credit card charges). He estimated that the cost for use of the truck and the other equipment (called depreciation ) for three months amounted to $700.


Required:

1. Prepare a quarterly income statement for James Cook Lawn Service for the months June, July, and August. Assume that the company will not be subject to income tax.