Part 1

On April 1, 2016, three ambitious college students started Terrific Lawn Maintenance
Corporation.
A summary of transactions completed through April 7, 2016, for Terrific Lawn Maintenance
Corporation follows:
a. Issued 500 shares of stock (1,500 shares in total) with a par value of $0.10 per share to
each of the three investors in exchange for $9,000 cash.
b. Acquired rakes and other hand tools (equipment) with a list price of $690 for $600; paid
the hardware store $200 cash and signed a three-month note for the balance.
c. Ordered three lawn mowers and two edgers from XYZ Lawn Supply, Inc., for $4,000.
d. Purchased four acres of land for the future site of a storage garage; paid cash, $5,000.
e. Received the mowers and edgers that had been ordered, signing a note to pay XYZ Lawn
Supply in full in 18 months.
f. Sold for $1,250 one acre of land to the city for a park. Accepted a note from the city for
payment by the end of the month.
g. One of the owners borrowed $3,000 from a local bank for personal use.
Required:
1. Set up T-accounts for Cash, Notes Receivable (from the city), Equipment (hand tools
and mowing equipment), Land, Short-Term Notes Payable (to the hardware store),
Long-Term Notes Payable (to the equipment supply company), Common Stock, and
Additional Paid-in Capital. Beginning balances are $0; indicate these beginning
balances in the T-accounts. Analyze each transaction using the process discussed in
the class.
2. Use the balances in the T-accounts developed in the previous requirement to prepare a
classified balance sheet for Terrific Lawn Maintenance Corporation at April 7, 2016.
Identify transactions (a)–(g) as investing or financing activities affecting cash flows
and the direction of each effect. Use +I for investing inflow, -I for investing outflow,
+F for financing inflow, and -F for financing outflow
Part 2
The additional following activities occurred during the rest of April 2016:
a. Purchased and used during April gasoline for mowers and edgers, paying $90 in cash at a
local gas station.
b. In early April, received from the city $1,600 cash in advance for lawn maintenance service
for April through July ($400 each month). (Record the entire amount as Unearned Revenue.)
c. In early April, purchased $300 of insurance covering six months, April through September.
(Record the entire payment as Prepaid Expenses.)
d. Mowed lawns for residential customers who are billed every two weeks. A total of $5,200
of service was billed in April.
e. Residential customers paid $3,500 on their accounts.
f. Paid wages every two weeks. Total cash paid in April was $3,900.
g. Received a bill for $320 from the local gas station for additional gasoline purchased on

FRA-EMBA
account and used in April. The bill will be paid in May.
h. Paid $700 principal and $40 interest on notes owed to XYZ Lawn Supply.
i. Paid $100 on accounts payable.
j. Collected $1,250 principal and $12 interest on the note owed by the city to Terrific Lawn
Maintenance Corporation.
Required:
1. Update T accounts and set up new T accounts if required.
2. Use the amounts in the T-accounts to prepare an unadjusted classified income
statement for Terrific Lawn Maintenance Corporation for the month ended April 30,
2016. (Adjustments to accounts will be presented in Part 3.)
3. Prepare the income statement (unadjusted)
4. Prepare Trial balance (unadjusted)
Part 3
Additional information follows:
a. The $1,600 in Unearned Revenue represents four months of service from April through
July.
b. Prepaid Expenses includes insurance costing $300 for coverage for six months (April
through September).
c. Mowers, edgers, rakes, and hand tools (equipment) have been used in April to generate
revenues. The company estimates $300 in depreciation each year.
d. Wages have been paid through April 28. Employees worked the last two days of April and
will be paid in May. Wages accrue at $200 per day.
e. An extra telephone line was installed in April at an estimated cost of $52, including hookup
and usage charges. No entry has yet been recorded. The bill will be received and paid in May.
f. Interest accrues on the outstanding short-term and long-term notes payable at an annual rate
of 12 percent. The $3,700 total in principal has been outstanding all month.
g. The estimated income tax rate for Terrific Lawn is 35 percent. Round to the nearest dollar.
Required:
1. Prepare an adjusted trial balance
2. Prepare an income statement, statement of stockholders’ equity, and balance sheet from the
amounts in the adjusted trial balance. Include earnings per share on the income statement.
The company issued 1,500 shares

FRA-EMBA