Task:
You have been requested by a friend name Dirk Khoury to give advice on the effects that certain business transactions will have on the entity he has started. Time is short so you will not be able to do all the detailed procedures of journalizing and posting. Instead, you must analyze the transactions without the use of a journal. Khoury will continue the business only if it can be expected to earn monthly net income of $5,000. The following transactions have occurred this month:
a. Khoury deposited $10,000 cash in a business bank account, and the corporation issued common stock to Khoury.
b. Borrowed $4,000 cash from the bank and signed a note payable due within 1 year.
c. Paid $300 cash for supplies.
d. Purchased advertising in the local newspaper for cash, $800
e. Purchased office furniture on account, $4,400
f. Paid the following cash expenses for 1 month: secretary's salary, $1,750; office rent, $600.
g. Earned revenue on account, $7,650
h. Earned revenue and received $2,500 cash
i. Collected cash from customers on account, $1,200
j. Paid on account, $1,000
k. Declared and paid dividends of $900
Required to do:
1. Set up the following T-accounts: cash, accounts receivable, supplies, furniture, accounts payable, notes payable, common stock, dividends, 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. Prepare a trial balance at the current date. List expenses with the largest amount first, the next largest amount second, and so on. The business name will be Khoury Furniture Finishing, Inc.
4. Compute the amount of net income or net loss for this first month of operations. Why or why not would you recommend that Khory continue in business?