Problem:
A bank business client has come to you for advice on the effects that certain transactions will have on his business. You don't have time to journalize the transactions, so the transactions have to be analyzed without the use of a journal. The client plans to continue the business only if he can expect a monthly net income of at least $5,000.
The following transactions occurred last month:
1. The client deposited $8,000 cash in your bank to start the company.
2. The client borrowed $6,000 from the bank and signed a note payable within one year.
3. The client paid $300 for business supplies.
4. The client paid $700 in cash to purchase advertising in the local paper.
5. The client earned $5,300 service revenue on account and $3,500 in cash.
6. The client collected $1,200 in cash from customers on account.
The client had the following cash expenses last month:
- Employee wages: $1,400
- Office Rent: $800
- Utilities: $300
- Interest: $50
Prepare a trial balance for the end of the month. List expenses with the largest amount first, the second largest second, etc.
Compute the amount of net income (or loss) for the month.
Post the trial balance and net income (or loss) on the discussion board. Explain why you would (or would not) recommend the client remain in business. Discuss any differences of opinion with other class members.