1. Prepare a balance sheet as of September 1. 2. Prepare an Income Statement, St

Question

1. Prepare a balance sheet as of September 1.
2. Prepare an Income Statement, Statement of Retained Earnings, and Balance Sheet for the month ending September 30. Was Campus Calendars a profitable business during the month of September?
3. Should the amounts spent on pizza and the car repair be considered legitimate business expenses or personal expenses? Campus Calendars Accounting Activity An enterprising student at a local college started a business making and selling a calendar, which features pictures of famous students and landmark buildings around campus. The first printing was a sell out in less than a month and new orders continue to be receiv founder of this sole proprietorship business. Campus Calendars, is Molly Brown. She has ed. The asked for your help to determine if Campus Calendars is a proftable venture. Molly wasnft certain exactly what information you would need, so she provided you with the following items from her on-line checking account. All events occurred during the month of September Deposits Made: From Molly Loan from Parents Calendar Sales Total Deposits $ 250 $ 500 $1,000 $1,750 Camera Rental 60 Printing to Famous Students $ 300 to Molly for repair 50 Pizza Repay Parents 500 Total Checks $ 400 $ 140 $1,450 You also made the following notes from your conversations with Molly: On September 1, Molly started the checking account with $250 of her personal .The famous students who posed for the calendar agreed to a flat payment of $30 savings and a $500 loan from her parents each. Some students appeared in more than one month. Molly bought pizza for the "crew after some of the photo sessions and planning meetings, which total to $140. Molly's car broke down during the month, so she used $50 from the business checking account to get the car fixed. .A local copy shop printed the color calendars for $4.00 each based on a minimum order of 100 calendars. When the first printing was a success, Molly paid back her parents in order to demonstrate the profitability of the business.

Explanation / Answer

The question has very limited information. So a few assumptions have been made while providing answers.

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Part 1)

The balance sheet as on September 1, is prepared as below:

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Part 2)

The income statement is given as below:

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The retained earnings statement is prepared as follows:

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The balance sheet as on 30th September is provided as follows:

Yes, Campus Calendars was a profitable business during the month of Septemeber, though the amount of profit was very less at $50.

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Part 3)

Both the expenses can be considered as legitimate business expenses if they are incurred in connection with the business or peformance of business activities. In the given case, the amount paid towards food (pizza) can be considered as legitimate as it has been incurred for the crew engaged in/for Molly's business. As this is the case of a proprietorship firm, we can assume that the car is used by Molly for business purposes. The car should be used exclusively for business purposes. This is not very clear from the question. However, if the car is used for both personal and business purposes, any amount incurred towards personal use will not be treated as business expense and cannot be claimed as a deduction in the income statement.

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Notes/Assumptions:

1) Car is assumed to be used exclusively for business purposes.

Campus Calendars Balance Sheet As on 1st September Assets Liabilities Cash/Bank 750 Molly's Capital 250 Loan (from Parents) 500 Total $750 $750

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