Matt has worked as a carpenter for 10 years. In 2012, Matt’s wages were $26,000. Lately, Matt has been unpleased with the owner. He is convinced he could run a business that does a better work at a lower cost. Matt decided to go into business for himself and opened Design’s by Matt.
To get the business going, Matt decided to invest heavily in advertising. He spent $7,500 on advertising aimed at homeowners and another $1,500 on advertising aimed at getting work from other contractors. Matt also purchased construction equipment costing $5,000 and other tools and equipment costing $4,500. He estimated that the construction equipment can be used for about 5 years, before maintenance costs will be too high and the equipment will need to be replaced. The other tools and equipment are not as durable and will have to be replaced in 3 years.
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At the end of the first year of business, Matt received $86,000 in cash from customers for work performed. Matt was owed another $4,500 from customers who are not required to pay cash, but are billed every 30 days.
A review of Matt’s checkbook shows he paid the following expenses (in addition to those mentioned previously) during the first year of business:
Other supplies 11,000
Wages–part-time assistant 9,500
Insurance (2-year policy) 2,400
Miscellaneous expenses 1,700
Matt’s utility bill for the last month of the year has not yet arrived. He estimated that the bill will be approximately $325.
Matt keeps some stock of materials on hand for customers who need work completed immediately. At the end of the year, about $15,000 of the materials purchased during the year was in his store stock. In addition, $2,600 in supplies had not been used yet.
1.Professionally prepare an income statement for the Year Ended 2013, which is Matt’s first year of being a business owner.
2.What are your thoughts about Matt’s decision to open his own business? Do you believe it was a good idea? Why or why not? Explain
3.Would Matt have been better off with his old job? Why or why not? Explain