Zachary Belch is a college student at Regent University. He is a rising senior and majors in business administration. He wants to own his own business one day so that is why he is majoring in business. He wanted to work a summer job but did not want to be inside all the time due to Covid. He came up with the idea of starting a landscaping business so he could be outside and make some money for college. Zachary formed a company with a small loan from his uncle for $1,200 at 10% and $800 of his own money. The Zachary Belch Lawn Service issued $800 of common stock to Zachary. Zachary rented lawn equipment, purchased the supplies he needed and hired other students to mow lawns and trim shrubbery. At the end of each month Zachary would mail bills to the customers. On August 31, he was ready to dissolve the business so he could return to college class’s full time. Because he was so busy he kept few records except for his checkbook and a list of all his customers.
On August 31, the business checkbook shows a balance of $4,000, and customers still owed $1,500. During the four months the business was open the business collected $12,000 from customers. The business checkbook lists payments for supplies totaling $800, and it still has gasoline, week trimmer cord and other supplies that costs a total of $100. The business paid employees $3,600 and still owes them $600 for the final week of the summer. Zachary rented some equipment from the local machine shop. On May 1 when the business began, the business signed a six-month rental agreement on mowers and paid $1,200 for the full rental period in advance. The machine shop will refund the unused portion of the prepayment if the equipment is returned in good condition. In order to get the refund, Zachary has kept the mowers in excellent condition. In fact, the business had to pay $600 to repair a few of the mowers. In order to transport employees and equipment to various mowing jobs, Zachary used a trailer that the business bought for $600. The business estimates that the summer’s work used up one-fourth of the trailers service potential. The business checkbook lists a payment of $500 for cash dividends paid to Zachary during the summer. The business paid the loan back during August as well. Other than that Zachary has kept all the money in the business so he can have a nice amount at the end of the summer to help pay for his college tuition.
1. Prepare the income statement
2. Prepare the statement of retained earnings
3. Prepare the balance sheet in good form.
4. Was the business successful this summer? Give reasons not just a yes or no question!
5. Ethics question-Please answer the ethics questions and back it up with reasons, not just yes or no. Please include scripture references as well to receive full credit!
Management and Earnings-revenues for most businesses are recognized when the services are completed. But because GAAP allows for some freedom in the revenue concept, some managers believe it is necessary to manage earnings. Some managers use rational judgment to justify earnings management because they believe they can better provide investors and creditors with reported earnings, which usually shows the company in a positive light.
A. List at least 4 parties affected by earnings management at companies.
B. Is earnings management good or bad?
C. Is earnings management legal and ethical?
D. What corporate governance is in place at most organizations and companies, whether for profit or nonprofit to limit earnings management?
