For Accounting Majors

Decision Case 2-1

Your friend, Dean McChesney, requested that you advise him on the effects that certain transactions will have on his business, A-Plus Travel Planners. Time is short, so you cannot journalize the transactions. Instead, you must analyze the transactions without a journal. McChesney will continue the business only if he can expect to earn a monthly net income of $6,000. The business completed the following transactions during June:

a. McChesney deposited $10,000 cash in a business bank account to start the company. The company gave capital to McChesney.

b. Paid $300 cash for office supplies.

c. Incurred advertising expense on account, $700.

d. Paid the following cash expenses: administrative assistant’s salary, $1,400; office rent, $1,000.

e. Earned service revenue on account, $8,800.

f. Collected cash from customers on account, $1,200.

Requirements

1. Open the following T-accounts: Cash; Accounts Receivable; Office Supplies; Accounts Payable; McChesney, Capital; Service Revenue; Salaries Expense; Rent Expense; and Advertising Expense.

2. Post the transactions directly to the accounts without using a journal. Record each transaction by letter. Calculate account balances.

3. Prepare a trial balance at June 30, 2016.

4. Compute the amount of net income or net loss for this first month of operations. Would you recommend that McChesney continue in business?