Just Rolling Along Inc. was organized on May 1 by two college students who recognized an opportunity to make money while spending their days at a beach along Lake Michigan. The two entrepreneurs plan to rent bicycles and in-line skates to weekend visitors to the lakefront. The following transactions occurred during the first month of operations:
May 1: Received contribution of $9,000 from each of the two principal owners of the new business in exchange for shares of stock.
May 1: Purchased ten bicycles for $300 each on an open account. The company has 30 days to pay for the bicycles.
May 5: Registered as a vendor with the city and paid the $15 monthly fee.
May 9: Purchased 20 pairs of in-line skates at $125 per pair, 20 helmets at $50 each, and 20 sets of protective gear (knee and elbow pads and wrist guards) at $45 per set for cash.
May 10: Purchased $100 in miscellaneous supplies on account. The company has 30 days to pay for the supplies.
May 15: Paid $125 bill from local radio station for advertising for the last two weeks of May.
May 17: Customers rented in-line skates and bicycles for cash of $1,800.
May 24: Billed the local park district $1,200 for in-line skating lessons provided to neighborhood children. The park district is to pay one-half of the bill within five working days and the rest within 30 days.
May 29: Received 50% of the amount billed to the park district.
May 30: Customers rented in-line skates and bicycles for cash of $3,000. May 30: Paid wages of $160 to a friend who helped over the weekend.
May 31: Paid the balance due on the bicycles.
Required
1. Prepare a table to summarize the preceding transactions as they affect the accounting equation. Use the format in Exhibit 3-1. Identify each transaction with the date.
2. Prepare an income statement for the month of May.
3. Prepare a classified balance sheet at May 31.
4. Why do you think the two college students decided to incorporate their business rather than operate it as a partnership?