Case 1. (L earn i ng Obj ec tiv es 4 , 6: Analy z e t he imp ac t o f t ransac ti ons on bu s i ness

Case 1. (Learning Objectives 4, 6: Analyze the impact of transactions on business accounts; construct and use a trial balance; measure net income or loss; decide whether to continue a business) A friend named Jay Barlow has asked what effect certain transactions will have on his company. Time is short, so you cannot apply the detailed procedures of journalizing and posting. Instead, you must analyze the transactions without the use of a journal. Barlow will continue the business only if he can expect to earn monthly net income of at least $5,000. The following transactions occurred this month:

a.    Barlow deposited $5,000 cash in a business bank account, and the corporation issued common stock to him.

b.   Borrowed $5,000 cash from the bank and signed a note payable due within 1 year.

c.    Paid $1,300 cash for supplies.

d.   Purchased advertising in the local newspaper for cash, $1,800.

e.    Purchased office furniture on account, $4,400.

f.     Paid the following cash expenses for 1 month: employee salary, $2,000; office rent, $1,200.

g.    Earned revenue on account, $7,000.

h.   Earned revenue and received $2,500 cash.

i.     Collected cash from customers on account, $1,200.

j. Paid on account, $1,000. ▶ Requirements

1. Set up the following T-accounts: Cash, Accounts Receivable, Supplies, Furniture, Accounts Payable, Notes Payable, Common Stock, Service Revenue, Salary Expense, Advertising Expense, and Rent Expense.

2. Record the transactions directly in the accounts without using a journal. Key each transaction by letter.

3.  Construct a trial balance for Barlow Networks, Inc., at the current date. List expenses with the largest amount first, the next largest amount second, and so on.

4.  Compute the amount of net income or net loss for this first month of operations. Why or why not would you recommend that Barlow continue in business?



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