A friend named Tom Tipple 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. Tipple will continue the business only if he can expect to earn monthly net income of $10,000. The following transactions occurred this month:
a. Tipple deposited $10,000 cash in a business bank account, and the corporation issued common shares to him.
b. Paid $300 cash for supplies.
c. Purchased office furniture on account, $4,400.
d. Earned revenue on account, $7,000.
e. Borrowed $5,000 cash from the bank, and signed a note payable due within one year.
f. Paid the following cash expenses for one month: employee's salary, $1,700; office rent, $600.
g. Collected cash from customers on account, $1,200.
h. Paid on account, $1,000.
i. Earned revenue, and received $2,500 cash.
j. Purchased advertising in the local newspaper for cash, $800.
Requirements
1. Set up the following T-accounts: Cash, Accounts Receivable, Supplies, Furniture, Accounts Payable, Notes Payable, Share Capital, 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 Tipple Networks, Inc.
4. Compute the amount of net income or net loss for this first month of operations. Why would you recommend that Tipple continue or not continue in business?