Reference no: EM132769586
Problem - Cory Neece is planning to manage and operate Eagle Caddy Service at Canyon Lake Golf and Country Club during June through August 2019. Cory will rent a small maintenance building from the country club for $500 per month and will offer caddy services, including cart rentals, to golfers. Cory has had no formal training in record keeping.
Cory keeps notes of all receipts and expenses in a shoe box. An examination of Cory's shoe box records for June revealed the following:
June 1. Transferred $2,000 from personal bank account to be used to operate the caddy service.
June 1. Paid rent expense to Canyon Lake Golf and Country Club, $500.
June 2. Paid for golf supplies (practice balls, for example), $750.
June 3. Arranged for the rental of 40 regular (pulling) golf carts and 20 gasoline-driven carts for $3,000 per month. Paid $600 in advance, with the remaining $2,400 due June 20.
June 7. Purchased supplies, including gasoline, for the golf carts on account, $1,000. Canyon Lake Golf and Country Club has agreed to allow Cory to store the gasoline in one of its fuel tanks at no cost.
June 15. Received cash for services from June 1-15, $5,400.
June 17. Paid cash to creditors on account, $1,000.
June 20. Paid remaining rental on golf carts, $2,400.
June 22. Purchased supplies, including gasoline, on account, $850.
June 25. Earned fees from customers on account, $1,800.
June 28. Paid miscellaneous expenses, $395.
June 30. Received cash for services from June 16-30, $4,200.
June 30. Paid telephone and electricity (utilities) expenses, $340.
June 30. Paid wages of part-time employees, $850.
30. Received cash on account, $1,500.
30. Determined the amount of supplies on hand at the end of June, $675.
Cory has asked you several questions concerning his financial affairs to date, and he has asked you to assist with his record keeping and reporting of financial data.
a. To assist Cory with his record keeping, prepare a chart of accounts that would be appropriate for Eagle Caddy Service.
b. Prepare an income statement for June in order to help Cory assess the profitability of Eagle Caddy Service. For this purpose, the use of T accounts may be helpful in analyzing the effects of each June transaction.
c. Based on Cory's records of receipts and payments, compute the amount of cash on hand on June 30. For this purpose, a T account for cash may be useful.
d. A count of the cash on hand on June 30 totaled $6,175. Briefly discuss the possible causes of the difference between the amount of cash computed in (c) and the actual amount of cash on hand.