As an accountant you are frequently asked to solve business or tax problems your friends encounter. Once
again your accounting skills are called upon as a friend of yours, Janet Janitorial, asks you to look over her
financial statements and advise her on them. She shares the following information: After 20 years of
service at her prior job, Janet was tired of the same old, daily routine and looking for a career change. At
a New Year’s party, she was talking with an old high school friend who had started an office cleaning
business ten years prior. This friend enthusiastically described the excellent earnings potential in the
industry with substantially more demand than supply of janitorial companies in the market. In January,
Janet decided to embrace the opportunity by quitting her job and starting a janitorial service, Acme Office
Cleaning Services. She was fortunate that her friend from the New Year’s party had more business than
she could handle and was kind enough to refer this extra business to Janet. Janet’s initial client was an
office complex that she billed $20,000 per month. Janet purchased three vans, cleaning equipment, office
furniture and office equipment for $200,000. She made subsequent purchases of equipment as reflected
in the changes in the balance sheet accounts. A local bank loaned her $120,000 at 6% for 6 years and Janet
used her personal savings to pay the remaining $80,000. Since she is the sole owner of the small business,
she has been operating it as a sole proprietorship and has not issued any stock. She draws money out as
needed rather than taking a salary. Janet lived off her savings and withdrew nothing for herself in the first
