Design’s by Matt Project Matt has worked as a carpenter for 10 years. In 2012, M

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Design’s by Matt Project 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. 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: Materials $42,000 Other supplies 11,000 Wages–part-time assistant 9,500 Rent 6,000 Insurance (2-year policy) 2,400 Utilities 2,100 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. Required: 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

Explanation / Answer

Answer:

It was good idea by Matt to open a new business. In the first year itself Matt has earned net profit of $ 22,775. Matt would have been better off with his old job as he earned $26,000 in 2012 from his job which is more than his profit of $ 22,775 in 2013 but Matt can do much better in his own business as feedback in first year itself is very good and he can earn more than $26,000 in coming years.

Income Statement of Design’s by Matt for the year ended 2013 Amount in $ Sales Revenue (86000+4500)            90,500.00 Less: Advertisement expenses (7500+1500)              9,000.00 Depreciation on equipment (5000/5)+(4500/3)              2,500.00 Materials (42000-15000)            27,000.00 Other supplies (11000-2600)              8,400.00 Wages–part-time assistant              9,500.00 Rent              6,000.00 Insurance (2400/2)              1,200.00 Utilities (2100+325)              2,425.00 Miscellaneous expenses              1,700.00 Net Profit            22,775.00

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