Your friend, Amin Akmali, has asked your advice about the effects that certain business transactions will have on his business. His business, Car Finders, finds the best deals on automobiles for clients. Time is short, so you cannot journalize transactions. Instead, you must analyze the transactions and post them directly to T-accounts. Akmali will continue in the business only if he can expect to earn monthly net income of $8,000. The business had the following transactions during March 2017:
a. Akmali deposited $50,000 cash in a business bank account.
b. The business borrowed $8,000 cash from the bank, which is recorded as a note payable due within one year.
c. Purchased for cash a vehicle to drive clients to appointments, $27,000.
d. Paid $1,600 cash for supplies.
e. Paid cash for advertising in the local newspaper, $1,200.
f. Paid the following cash expenses for one month: commission, $12,400; office rent, $800; utilities, $600; gas, $1,000; interest, $200.
g. Earned revenue on account, $20,600.
h. Earned $7,500 revenue and received cash.
i. Collected cash from customers on account, $2,400.
Required
1. Open the following T-accounts: Cash; Accounts Receivable; Supplies; Vehicle; Notes Payable; Amin Akmali, Capital; Advising Revenue; Advertising Expense; Interest Expense; Rent Expense; Commission Expense; Gas Expense; Utilities Expense.
2. Record the transactions directly in the T-accounts without using a journal. Identify each transaction by its letter.
3. Prepare an unadjusted trial balance at March 31, 2017. List expenses alphabetically.
4. Compute the amount of net income or net loss for this first month of operations. Would you recommend Akmali continue in business?
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SOLUTION
Req. 1 and 2
Cash
Cash
Cash
Cash
Cash
Cash
Accounts Receivable
Accounts Receivable
Accounts Receivable
Accounts Receivable
Accounts Receivable
Accounts Receivable
(a)
50,000
(d)
1,600
(g)
20,600
(i)
2,400
(b)
8,000
(e)
1,200
Bal.
18,200
(h)
7,500
(f)
15,000
(i)
2,400
(c)
27,000
Bal.
23,100
Supplies
Supplies
Supplies
Supplies
Supplies
Supplies
Vehicle
Vehicle
Vehicle
Vehicle
Vehicle
Vehicle
(d)
1,600
(c)
27,000
Bal.
1,600
Bal.
27,000
Notes Payable
Notes Payable
Notes Payable
Notes Payable
Notes Payable
Notes Payable
(b)
8,000
Bal.
8,000
Amin Akmali, Capital
Amin Akmali, Capital
Amin Akmali, Capital
Amin Akmali, Capital
Amin Akmali, Capital
Amin Akmali, Capital
(a)
50,000
Bal.
50,000
Advising Revenue
Advising Revenue
Advising Revenue
Advising Revenue
Advising Revenue
Advising Revenue
Advertising Expense
Advertising Expense
Advertising Expense
Advertising Expense
Advertising Expense
Advertising Expense
(g)
20,600
(e)
1,200
(h)
7,500
Bal.
1,200
Bal.
28,100
Interest Expense
Interest Expense
Interest Expense
Interest Expense
Interest Expense
Interest Expense
Rent Expense
Rent Expense
Rent Expense
Rent Expense
Rent Expense
Rent Expense
(f)
200
(f)
800
Bal.
200
Bal.
800
Commission Expense
Commission Expense
Commission Expense
Commission Expense
Commission Expense
Commission Expense
Utilities Expense
Utilities Expense
Utilities Expense
Utilities Expense
Utilities Expense
Utilities Expense
(f)
12,400
(f)
600
Bal.
12,400
Bal.
600
Gas Expense
Gas Expense
Gas Expense
Gas Expense
Gas Expense
Gas Expense
(f)
1,000
Bal.
1,000
Req. 3
Car Finders
Unadjusted Trial Balance
March 31, 2017
ACCOUNT
DEBIT
CREDIT
Cash
$23,100
Accounts receivable
18,200
Supplies
1,600
Vehicle
27,000
Notes payable
$ 8,000
Amin Akmali, capital
50,000
Advising revenue
28,100
Advertising expense
1,200
Commission expense
12,400
Gas expense
1,000
Interest expense
200
Rent expense
800
Utilities expense
600
Total
$86,100
$86,100
Req. 4 (Net income or loss for first month of operations)
Car Finders
Income Statement
For the Month Ended March 31, 2017
Revenue:
Advising revenue
$28,100
Expenses:
Advertising expense
$1,200
Commission expense
12,400
Gas expense
1,000
Interest expense
200
Rent expense
800
Utilities expense
600
Total expenses
16,200
Net income
$11,900
Recommendations: Continue the business because expected net income exceeds the target amount. Consideration should be given for the fact that the income is not very high.