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Mark Davies has started a lawn mowing business (MD Lawnmowing) as a temporary job/business which he intends to run until he starts his business degree at the University of South Australia in four months.Mark has never owned or run a business before. To start the business on 1 March 2014, he deposited $2,400 into a new bank account opened in the name of the business. The $2,400 consisted of a $2000 loan from his father and $400 of his own money. Mark rented some equipment, purchased supplies, and hired friends to mow and trim his customer’s lawns.
At the end of each month Marksent invoices to his customers. On 30th June, he was ready to dissolve the business and start hisuniversity studies. As he was so busy, he kept few records other than his cheque book and a list of amounts owed to him by customers.
At 30June, Mark’s business accountcheque book shows a balance of $1,900, and his customers still owe him $500. During the period, he collected $4,800 from customers. His cheque book lists payments for supplies totalling $510, and he still has fuel and supplies that cost a total of $65 on hand. He paid his employees $2,000, and he still owes them $400 for their final week of work.
Mark rented some equipment from Kennard’s Hire. On 1 April, he signed a six-month rental agreement on lawnmowers and paid $720 for the full period. Kennard’s Hire will refund the unused portion of the prepayment if the equipment is in good order when he returns it. In order to get the refund, Mark has kept the equipment in excellent condition. In fact during May paid $250 to repair one of the mowers.
To transport employees and equipment to jobs, Mark used a trailer that he bought for $660. He believes that the period’s work used up one-third of the trailer’s service potential. The business cheque book lists a payment of $660 for private cash withdrawals by Mark during the period. In June Mark paid back a quarter of the amount his father had lent to him.
Mark estimates that he spent approximately 80 hours working on the business during the period. He plans to recommence operations on a similar basis during major breaks in his university study and believes he will do better in later periods as he now has an existing customer base to work from.
1. Prepare the business Income Statement for the period.
2. Prepare the classified Balance Sheet at the end of the period.
3. Was Mark’s venture successful?Give the reasons for your answer. 150 – 250 words only.
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