You have been requested by a friend named Dean McChesney to advise him on the effects that certain transactions will have on his business. Time is short, so you cannot journalize the transactions. Instead, you must analyze the transactions without a journal.
McChesney will continue the business only if he can expect to earn monthly net income of $6,000. The business completed the following transactions during June:
| a. | McChesney deposited $10,000 cash in a business bank account to start the company. The company gave capital to Machesney. |
| b. | Paid $300 cash for supplies. |
| c. | Incurred advertising expense on account, $700. |
| d. | Paid the following cash expenses: secretary”s salary, $1,400; office rent, $1,100. |
| e. | Earned service revenue on account, $8,800. |
| f. | Collected cash from customers on account, $1,200. |
Requirements
1. Open the following T-accounts: Cash; Accounts receivable; Supplies; Accounts payable; McChesney, capital; Service revenue; Salary expense; Rent expense; and Advertising expense.
2. Post the transactions directly to the accounts without using a journal. Key each transaction by letter. Follow the format illustrated here for the first transaction.
| Cash | McChesney, capital | ||
| (a) 10,000 | (a) 10,000 | ||
3. Prepare a trial balance at June 30, 2014. List the largest expense first, the next largest second, and so on. The business name is A-Plus Travel Planners.
4. Compute the amount of net income or net loss for this first month of operations. Would you recommend that McChesney continue in business?
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