Mel Hollingsworth recently left his job at a local pool company to open his own pool and spa maintenance business. Mel Hollingsworth took all of the money he and his wife had in their personal savings account and used it to open Pure Water, Inc., on May 1, 2012. Presented next are the transactions for the first month of operations for Pure Water, Inc.:
1 Mel invested $30,000 cash and a used truck with a fair market value of $12,500 in the business in exchange for the company’s common stock.
3 Paid $2,400 cash to purchase office equipment.
7 Purchased $770 of supplies on account.
12 Performed services for cash customers and received $1,200.
15 Incurred and paid salaries of $550 to the office receptionist.
16 Sold the company truck for $12,500.
18 Signed a note payable for $35,800 to purchase a new truck.
21 Performed $3,000 of services on account for a local hotel chain.
27 Paid $400 of the amount owed from the purchase of supplies on May 7.
30 Received $1,900 on account from credit customers.
31 Received the utility bill for the month of May, $610. The bill is not due until June 15.
31 Paid $2,200 dividends to the shareholder, Mel Hollingsworth.
1. Enter the transactions for Pure Water, Inc., for the month of May into the expanded accounting equation. Calculate the ending balances at May 31.
2. Prepare the income statement for Pure Water, Inc., for the first month of operations.
3. Prepare the statement of retained earnings for Pure Water, Inc., for the first month of operations.
4. Prepare the balance sheet for Pure Water, Inc., at May 31.
5. Did Mel make a wise decision leaving his job to start Pure Water, Inc.?