# Lily Zhang started a new business on January 1, 2020,

Lily Zhang started a new business on January 1, 2020, called Zhang Consulting. She develops financial investment plans for young adults. During the business’s first year of operations, the following activities occurred:

a. Zhang invested \$120,000 cash and office equipment valued at \$10,000 in the business.

b. Purchased a small building for \$240,000 to be used as an office. Paid \$50,000 in cash and signed a note payable promising to pay the balance over several years.

c. Purchased \$18,000 of office equipment for cash.

d. Purchased \$4,000 of office supplies and \$6,400 of office equipment on credit.

e. Paid a local online newspaper \$4,500 for an announcement that the office had opened.

f. Completed a financial plan on credit and billed the client \$6,000 for the service.

g. Designed a financial plan for another client and collected an \$8,000 cash fee.

h. Zhang withdrew \$5,500 cash from the company bank account to pay personal expenses.

i. Zhang signed a \$20,000 contract for the office to be painted in February 2021. A deposit of \$6,000 will be paid on January 15, 2021.

j. Received \$4,000 from the client described in (f).

k. Paid for the equipment purchased in (d).

l. Paid \$3,800 cash for the administrative assistant’s wages.

Required

1. Create a table like the one presented in Exhibit 1.15, using the following headings for the columns: Cash; Accounts Receivable; Office Supplies; Office Equipment; Building; Accounts Payable; Notes Payable; and Lily Zhang, Capital. Leave space for an Explanation of Equity Transaction column to the right of the Capital column. Identify revenues and expenses by name in the Explanation column.

2. Use additions and subtractions to show the effects of the above transactions on the elements of the equation. Do not determine new totals for the items of the equation after each transaction. Next to each change in equity, state whether the change was caused by an investment, a revenue, an expense, or a withdrawal. Determine the final total for each item and verify that the equation is in balance.

3. Prepare an income statement, a statement of changes in equity, and a balance sheet for 2020 using the formats provided.

Analysis Component: Zhang’s assets are financed 60% by debt. What does this mean? As part of your answer, include an explanation of how the 60% was calculated.

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