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    Classified balance sheet

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    Prepare the classified balance sheet of Maltbee Lawn Service at August 31.

    Doug Maltbee formed a lawn service business as a summer job. To start the business on May 1, he deposited $1,000 in a new bank account in the name of the proprietorship. The $1,000 consisted of a $600 loan from his father and $400 of his own money. Doug rented lawn equipment, purchased supplies, and hired fellow students to mow and trim his customer's lawns.

    At the end of each month, Doug mailed bills to his customers. On August 31, he was ready to dissolve the business and return to Louisiana State University for the fall semester. Because he was so busy, he kept few records other than his checkbook and a list of amounts owed to him by customers.

    At August 31, Doug's checkbook shows a balance of $690, and his customers still owe him $500. During the summer, he collected $4,250 from customers. His checkbook lists payments for supplies totaling $400, and he still has gasoline, weedeater cord, and other supplies that cost a total of $50. He paid his employees $1,900, and he still owes them $200 for the final week of the summer.

    Doug rented some equipment from Scholes Machine Shop. On May 1, he signed a six-month lease on mowers and paid $600 for the full lease period. Scholes will refund the unused potion of the prepayment if the equipment is in good shape. To get the refund, Doug has kept the mower in excellent condition. In fact, he had to pay $300 to repair a mower.

    To transport employees and equipment to jobs, Doug used a trailer that he bought for $300. He figures that the summer's work used up one-third of the trailer's service potential. The business checkbook lists a payment of $460 for cash withdrawals by Doug during the summer. Doug paid his father back during August.

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    Solution Preview

    The $1,000 is considered to be paid-in capital. It does not matter the break down of the sources of the $1,000 since this is the balance sheet for the company, not for Doug Maltbee.

    The amount on the check book reflects the cash balance for the company, which is $690.

    The amount the customers owe him is account receivable, which has a balance of $500.

    The amount he collects and pays should not appeal on the balance sheet.

    Gasoline, weedeater cord, and other supplies will be classified as part of the long-term asset, which has balance of $50.

    The amount he paid to employees should not appear on the balance sheet, the amount he owes to employees, $200, is a current liability.

    For the rented equipment, it is used for 4 months. Therefore, the remaining value is $600 * (1 - 4/6) = $200. The $300 repair fees should be treated as expenses and should not appear on the balance sheet. It should not be capitalized because (1) the company does not own the equipment and (2) it does not ...

    Solution Summary

    This provides an example of creating a classified balance sheet for a given business situation.

    $2.19

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