Just Rolling Along Inc. in May: Generated $6,000 revenue, incurred $5,785 expenses, resulting in $215 net income. Balance sheet shows $7,915 assets, $6,200 liabilities, $18,215 equity. Incorporation likely for liability protection, growth potential, and credibility.
In May, Just Rolling Along Inc. earned $6,000 (from rentals and lessons) with expenses totaling $5,785 (covering costs of goods sold, advertising, and wages), resulting in a net income of $215. The balance sheet reflects assets of $7,915, liabilities of $6,200, and equity of $18,215.
The decision to incorporate was likely motivated by several factors: safeguarding personal assets through limited liability, the potential for easier capital acquisition by issuing stock, establishing longevity as a separate entity, and potential tax advantages.
Incorporation also brings credibility and prestige, potentially attracting more customers or investors. The balance of higher liabilities against assets and equity indicates leveraging for initial setup, typical in a new business, with the intention of growth and stability over time.
complete the question
Just Rolling Along Inc. was organized on May 1 by two college students who recognized an opportunity to make money while spending their days at a beach along Lake Michigan. The two entrepreneurs plan to rent bicycles and in-line skates to weekend visitors to the lakefront. The following transactions occurred during the first month of operations:
May 1: Received contribution of $9,000 from each of the two principal owners of the new business in exchange for shares of stock.
May 1: Purchased ten bicycles for $300 each on an open account. The company has 30 days to pay for the bicycles.
May 5: Registered as a vendor with the city and paid the $15 monthly fee.
May 9: May 10: Purchased 20 pairs of in-line skates at $125 per pair, 20 helmets at $50 each, and 20 sets of protective gear (knee and elbow pads and wrist guards) at $45 per set for cash. Purchased $
100 in miscellaneous supplies on account. The company has 30 days to pay for the supplies,
May 15:
Paid $125 bill from local radio station for advertising for the last two weeks of May.
May 17:
Customers rented in-line skates and bicycles for cash of $1,800, Billed the local park district $1,200 for in-line skating lessons provided to neighborhood children. The park district is to pay one half of the bill within five working days and the rest within 30 days.
May 24:
May 29:
Received 50% of the amount billed to the park district.
May 30:
Customers rented in-line skates and bicycles for cash of $3,000,
May 30: Paid wages of $160 to a friend who helped over the weekend.
May 31: Paid the balance due on the bicycles.
Required
1.. Prepare a table to summarize the preceding transactions as they affect the accounting equa tion. Use the formar in Exhibit 3-1. Identify each transaction with the date.
2. Prepare an income statement for the month of May.
3. Prepare a classified balance sheet at May 31.
4. Why do you think the two college students decided to incorporate their business rather than operate it as a partnership?
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