A friend named Lance Barton has asked what effect certain transactions will have on his company, Blast Networks, Inc. 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. Barton 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. Barton deposited $7,000 cash in a business bank account, and the corporation issued common stock to him.

b. Borrowed $6,000 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, $5,400.

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

g. Earned revenue on account, $8,000.

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. Determine the ending balance in each account.

3. Construct a trial balance for Blast 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 would you or wouldn’t you recommend that Barton continue in business?