The following transactions and events took place during week four.•
•
•
•
On Sunday morning, Abigail and Sarah held a business meeting and they
discussed the following issues and made the following decisions:
o Abigail mentioned that two customers asked if they can be billed on
a monthly basis instead of having to pay each week. These
customers do not want to spend their Friday evenings waiting for
Abigail to come to their house and collect what they owe. Rather,
they prefer that Canine to Five email them a bill at the end of each
month, and then they will pay the bill within 15 days. Sarah and
Abigail agree that this is a reasonable request; and they decide to
give each of their customers the option to pay on a monthly basis if
that is what the customer wants.
o Abigail mentioned that some of the customers asked
whether Canine to Five sells dog treats, dog toys, etc. Abigail told
Sarah that this would be a nice source of additional revenue and
Sarah agreed.
o Abigail mentioned that some of the customers have asked
whether Canine to Five provides grooming services. Abigail told
Sarah that this would also be a nice source of additional revenue
and Sarah agreed.
After their Sunday-morning meeting, Abigail and Sarah went to a local pet
store and purchased:
o A week’s worth (based on their estimate) of dog treats and dog
toys. They paid $30 for the items and they used cash that Sarah
withdrew from the company bank account.
o A dog grooming kit (e.g., an electric razor, etc.). They paid $104 for
the kit and they used cash that Sarah withdrew from the company
bank account. Abigail and Sarah estimate that the grooming
equipment has a useful life of two years.
While Abigail and Sarah were at the pet store, Abigail promoted Canine to
Five to numerous people and she signed up one new customer. Similar to the
agreement that Canine to Five has with its other seven customers, Abigail
agreed to walk the new customer’s dog twice a day on Monday through
Friday. The charge is still $20 per day. Hence, Abigail expects to earn
$800=5×20×8 in dog-walking revenue during week four.
On Sunday evening, Sarah sent an email to each of customer. In the email, she
explained the new payment option and she gave each customer the option to
either pay in cash on a weekly basis or to receive a bill at the end of each
calendar month via email. The bill would be for the total amount of goods and
services sold to the customer during the month; and the customer would be
required to pay the amount owed by the 15th day of the following calendar
month. All eight customers responded to the email. Five customers stated that
they prefer to pay on a weekly basis and three customers stated that they
•
•
•
•
•
•
want to be billed on a monthly basis. Sarah knows the three customers who
want to be billed on a monthly basis and she is sure that they will pay what
they owe.
On Wednesday, a customer hired Canine to Five to perform dog grooming
services. Canine to Five charges $50 for grooming and Abigail performed the
service the same day. The owner of the dog is one of the customers who
wants to be billed on a monthly basis. So, Abigail told Sarah to make a note of
the grooming services so that Canine to Five will bill the customer at the end
of the month.
On Thursday evening, Sarah and Abigail had a brief meeting in which Sarah
expressed a concern about Abigail’s wages. Sarah isn’t worried about the
amount of wages that Canine to Five will pay Abigail but she is worried about
the timing. Specifically, now that some customers will only pay Canine to
Five once a month, Sarah is concerned that, during certain weeks of the
month, Canine to Five might not have enough cash on hand to pay Abigail
what it owes to her. Abigail agrees that this is a concern; and she and Sarah
agree on the following approach: Each week, Canine to Five will pay Abigail an
amount of cash that equals half of the wages she earned during the week.
Then, on the 15th of every month, Canine to Five will pay Abigail the unpaid
wages that it owes to her. This new wage agreement became effective
immediately.
During the week:
o Abigail walked the customers’ dogs and continued to promote the
business to people she met.
o Canine to Five sold dog treats and dog toys for a total price of $30.
The treats and toys had a historical cost of $20. All of these sales
were for cash.
On Friday evening, Abigail met with the five customers who agreed to pay on
a weekly basis and she collected a total of $500, which she gave to Sarah later
that evening.
On Saturday morning, which was the last day of the calendar month, Sarah:
o Paid Abigail $330, which equals the cash portion of Abigail’s salary
for the week (i.e., $330=$880×0.75×0.50 ).
o Decided that Canine to Five will pay Sarah a dividend of $91
o Sent emails to the three customers who chose to be billed monthly.
In each email she attached an invoice that described: (1) the amount
the customer owed for services rendered and (2) how to pay the
amount owed.
Note that Canine to Five reports depreciation on a weekly basis.
Required
1. Prepare an income statement for week four.
2. Prepare a balance sheet at the end of week four.
BB
+
–
Assets
Template
EB
Liabilities
BB
+
–
BB
+
–
Equity
Liabilities and Equity
BB
Cash
Assets
Cash
Assets
Cash
Assets
Cash
0
0
BB
100
100
BB
600
600
BB
225
Week one – issue equity and originate loan
+
EB
100
100 Loan payable
100
0
100 Liabilities
+
500
500
+
+
0
0
20
20
0
Share capital
Equity
0
0
80
80
0
Liabilities and Equity
0
100
0
Week two – earn revenue
EB
600 Loan payable
0
600 Liabilities
BB
20
20
Share capital
Retained earnings
Equity
80
0
80
Liabilities and Equity
100
Week two – incur salary expense
EB
375
225 Loan payable
0
375
225 Liabilities
BB
20
20
Share capital
Retained earnings
Equity
Liabilities and Equity
Week two – pay dividend
EB
50
175 Loan payable
+
0
0
500
500
0
+
0
0
80
500
580
0
375
375
600
0
375
BB
20
+
–
Assets
Cash
Assets
Cash
Assets
Cash
Assets
225
BB
175
175
BB
875
875
BB
350
350
BB
0
+
700
700
+
175 Liabilities
20
0
0
Share capital
Retained earnings
Equity
80
125
205
0
50
50
Liabilities and Equity
225
0
50
Week three – earn revenue
EB
875 Loan payable
0
875 Liabilities
BB
20
20
+
0
0
Share capital
Retained earnings
Equity
80
75
155
700
700
0
Liabilities and Equity
175
700
0
Week three – incur salary expense
EB
525
350 Loan payable
0
525
350 Liabilities
BB
20
20
+
Share capital
Retained earnings
Equity
Liabilities and Equity
+
0
+
50
Week three – pay dividend
EB
75
275 Loan payable
75
275 Liabilities
0
0
80
775
855
0
525
525
875
0
525
BB
20
20
+
0
0
Share capital
Retained earnings
Equity
80
250
330
0
75
75
Liabilities and Equity
350
0
75
Week four – earn revenue
EB
BB
+
–
Cash
Assets
Cash
Assets
Cash
Assets
275
275
BB
775
775
BB
250
250
500
500
20
20
0
0
Share capital
Retained earnings
Equity
80
175
255
700
700
0
Liabilities and Equity
275
700
0
Week four – incur salary expense
+
EB
525
250 Loan payable
0
525
250 Liabilities
BB
20
20
+
Share capital
Retained earnings
Equity
Liabilities and Equity
+
0
0
775 Loan payable
775 Liabilities
Week four – pay dividend
EB
75
175 Loan payable
75
175 Liabilities
0
0
80
875
955
0
525
525
975
0
525
BB
20
20
+
0
0
Share capital
Retained earnings
Equity
80
350
430
0
75
75
Liabilities and Equity
450
0
75
EB
EB
20
20
80
80
100
EB
20
20
80
500
580
600
EB
20
20
80
125
205
225
EB
20
Income statement for weeks two and three
Week four Week three Week two
Revenue
700
500
Salary expense
(525)
(375)
Net income
175
125
Cash
Assets
Balance sheets for weeks one, two, and thr
Week four Week three Week two Week one
275
175
100
275
175
100
20
80
75
155
175
EB
20
20
80
775
855
875
EB
20
20
80
250
330
350
EB
20
20
80
175
255
275
EB
20
20
80
875
955
975
EB
20
20
80
350
430
450
EB
20
20
80
275
355
375
ets for weeks one, two, and three
Week four
Loan payable
Liabilities
Week three Week two Week one
20
20
20
20
20
20
Share capital
Retained earnings
Equity
80
175
255
80
75
155
80
0
80
Liabilities and Equity
275
175
100
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