Lisa Duncan, a junior in college, has been seeking ways to earn extra spending money.
As an active sports enthusiast, Lisa plays tennis regularly at the Phoenix Tennis Club, where her family has a membership. The president of the club recently approached Lisa with the proposal that she manage the club's tennis courts. Lisa's primary duty would be to supervise the operation of the club's four indoor and 10 outdoor courts, including court reservations.
In return for her services, the club would pay Lisa $325 per week, plus Lisa could keep whatever she earned from lessons. The club and Lisa agreed to a one-month trial, after which both would consider an arrangement for the remaining two years of Lisa's college career. On this basis, Lisa organized Serve-N-Volley. During September 2014, Lisa managed the tennis courts and entered into the following transactions:
a. Opened a business account by depositing $950.
b. Paid $300 for tennis supplies (practice tennis balls, etc.).
c. Paid $275 for the rental of video equipment to be used in offering lessons during September.
d. Arranged for the rental of two ball machines during September for $250. Paid $100 in advance, with the remaining $150 due October 1.
e. Received $1,750 for lessons given during September.
f. Received $600 in fees from the use of the ball machines during September.
g. Paid $800 for salaries of part-time employees who answered the telephone and took reservations while Lisa was giving lessons.
h. Paid $290 for miscellaneous expenses.
i. Received $1,300 from the club for managing the tennis courts during September.
j. Determined that the cost of supplies on hand at the end of the month totaled $180; therefore, the cost of supplies used was $120.
k. Withdrew $400 for personal use on September 30.
As a friend and accounting student, you have been asked by Lisa to aid her in assessing the venture.
1. Indicate the effect of each transaction and the balances after each transaction, using the following tabular headings:

2. Prepare an income statement for September.
3. Prepare a statement of owner's equity for September. The statement of owner's equity for a proprietorship is similar to the retained earnings statement for a corporation. The balance of the owner's capital as of the beginning of the period is listed first. Any investments made by the owner during the period are then listed and the net income (net loss) is added (subtracted) to determine a subtotal. From this subtotal, the owner's withdrawals are subtracted to determine the increase (decrease) in owner's equity for the period. This increase (decrease) is then added to (subtracted from) the beginning owner's equity to determine the owner's equity as of the end of the period.
4. Prepare a balance sheet as of September 30.
5. a. Assume that Lisa Duncan could earn $10 per hour working 30 hours a week as a waitress. Evaluate which of the two alternatives, working as a waitress or operating Serve-N-Volley, would provide Lisa with the most income per month.
b. Discuss any other factors that you believe Lisa should consider before discussing a long-term arrangement with the Phoenix TennisClub.

  • CreatedFebruary 28, 2014
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