As an alternative to a summer job paying $6 per hour between her junior and seni
ID: 2372023 • Letter: A
Question
As an alternative to a summer job paying $6 per hour between her junior and senior years in college, Lori hart accepted an opportunity to lease and operate the tennis court concession in a local city recreational complex during June, July and august, 1993. Although she kept no accounting records, Lori was careful to handle all funds related to the tennis concession through a special bank account opened for that purpose.An analysis of those deposits slips and check stubs for the three months is summarized below.
Receipts:
Hart's investment of personal funds $1,400
Court rental fees 7,375
Tennis lesson fess 1,975
Tennis lesson fees received in advance 150
Proceeds of short-term loan from bank 900
Total receipts $11,800
Disbursements:
Purchase of ball-throwing machine 140
Supplies Purchased 960
Utilities 175
Lease payments to city 990
Wages to part-time assistant 1,500
Liability insurance premiums 210
Repayments of bank loan, including interest 920
Withdrawals of cash for personal expenses 750
Total disbursements $5645
Cash balance, August 31, 1993 $6155
Lori confides in you, a personal friend who happens to be studying accounting, that she is pleased with her apparent profit of $6,155 for the summer. Eager to practice your newly acquired skills, you offer to review her records and prepare an income statement for the three months and a classified balance sheet at the end of August. In discussion with Lori, you learn that:
a.Some tennis lessons, Paid for in advance, could not be scheduled during the summer. Lori plans to refund these fees, which total $150.
b.Repayments to the bank included $ 250 of interest expense on the loan.
c.Rental receipts include all revenue earned except for $500 due from a company that rented the entire set of courts for a weekend late in
August.
d.A ball-throwing machine, purchased used, turned out to be quite temperamental. With a complete breakdown shortly after it was purchased, it was junked. (Note: Debit Equipment Loss)
e.Supplies consisted of cans of tennis balls. Lori gave away a free can of tennis balls for each five hours of court time rented by an individual. Supplies amounting to $ 120 were on hand at August 31; these may be returned for a full refund. Lori estimates that each month during the summer, she took home $15 worth of supplies for personal use.
f.All lease payments due the city were paid except for the final amount of $180.
g.Lori estimates that the utility bill for August, when received, will be $100.
h.The insurance premiums represent coverage for the months of June, July and August.
Required
Prepare financial statements for Lori’s tennis concession (a sole proprietorship). You should formulate general journal entries summarizing the cash receipts and the cash disbursements and incorporating the additional data. After posting these to T accounts, you will be able t prepare the financial statements.
In further talks with Lori, you learn that the amount she contributed had been in a savings accounts earnings 6% interest and that she worked an average of 60 hours in each of the 13 weeks the tennis concession was operated. What observations might you offer Lori regarding the financial success of the summer venture? What nonfinancial considerations are involved?
Explanation / Answer
The journal entries for each of the transactions are below: Hart investment of personal funds$1,400 Cash Dr 1,400 Capital, Hart Cr 1,400 ( This is the entry for business to start, the money invested goes to Capital of the owner) Court rental fees $7,375 Cash Dr 7,375 Court Rental Fee Cr 7,375 ( This is income of the firm) Tennis Lesson fees $1,975 Cash Dr 1,975 Tennis Lesson Fees Cr 1,975 (This is income of the firm) Tennis Lesson fees received in ad
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