Vanessa Simon and Juan Cassetto started a landscaping company as a way of earning money for the summer. They purchased two lawn mowers for $250 each, a leaf blower for $59, and various smaller items, such as rakes, a shovel, canvas, clippers, and pails, which cost them $63. Vanessa and Juan figured that the lawn mowers and all of the equipment would have no resale value after being used throughout the summer. Vanessa rented her father’s van for $100 per month. They began work in May and worked through to the end of September. They had several regular customers who paid them for managing their yards either once or twice a week. These customers paid them at the end of each week. They did the landscaping for three malls, watering and planting flowers and trimming hedges. They left an invoice with the mall manager every two weeks and received a cheque for the work the following week. They set up a separate bank account for their company and deposited money when they were paid. On September 30, they tallied up what they had earned over the summer. They had deposited $14,350 in the bank account, which represented the amount received from customers. One customer still owed them $150 for work and had promised to pay them on October 5. The final cheque from the mall manager for $136 had not arrived yet.
In addition to the original amount spent at the beginning of summer, they paid for the following items: $100 per month for their two cell phones, $450 for gas and $39 for an oil change for the van, $20 for sunscreen, $250 for gas and oil for the lawn mowers, and $600 to rent a trailer to carry their equipment. Vanessa still owes her father for renting the van for September.
Required:
Prepare as much of the statement of income for Vanessa and Juan as you can, showing the proper amount of revenue and any expenses that should be included. Show all calculations. Using the revenue recognition criteria, justify the revenue recognition method you selected. Do you have a cost of goods sold? Why or why not? What other expenses do you think they would probably have?