Answered Essay: Lita Lopez started Biz Consulting, a new business, and completed the following transactions during its first year of operations.

Lita Lopez started Biz Consulting, a new business, and completed the following transactions during its first year of operations.

a.Lita Lopez invested $70,000 cash and office equipment valued at $10,000 in the company.

b.The company purchased an office suite for $40,000 cash.

c.The company purchased office equipment for $15,000 cash.

d.The company purchased $1,200 of office supplies and $1,700 of office equipment on credit.

e.The company paid a local newspaper $500 cash for printing an announcement of the office’s opening.

f.The company completed a financial plan for a client and billed that client $2,800 for the service.

g.The company designed a financial plan for another client and immediately collected a $4,000 cash fee.

h.Lita Lopez withdrew $3,275 cash from the company for personal use.

i.The company received $1,800 cash as partial payment from the client described in transaction f.

j.The company made a partial payment of $700 cash on the equipment purchased in transaction d.

k.The company paid $1,800 cash for the office secretary’s wages for this period.

.Create the following table . Assets=Liabilities+EquityCash+Accounts Receivable+Office Supplies+Office Equipment+Office Suite=Accounts Payable+L. Lopez, Capital–L. Lopez, Withdrawals+Revenues–Expenses

Use additions and subtractions within the table to show the dollar effects of each transaction on individual items of the accounting equation. Show new balances after each transaction.

Check (1) Ending balances: Cash, $14,525; Expenses, $2,300; Accounts Payable, $2,200 2.Determine the company’s net income.

Expert Answer

 

Solution

1.

Transactions Cash +account

Receivable

+Office

Supplies

+Office equipment +Office

Suite

= Account

Payable

+L.Lopaz

Capital

-L.

Lopaz

Drawing

+Revenue – expenses
a. $70,000 $10,000 $80,000
b (40,000) $40,000
Balance $30,000 0 0 $10,000 $40,000 = 0 $80,000 0 0 0
c (15,000) $15,000
Balance $15,000 0 0 $25,000 $40,000 = 0 $80,000 0 0 0
d $1,200 $1,700 $2,900
Balance $15,000 0 $1,200 $26,700 $40,000 = $2,900 $80,000 0 0 0
e (500) $500
Balance $14,500 0 $1,200 $26,700 $40,000 = $2,900 $80,000 0 0 $500
f $2,800 $2,800
Balance $14,500 $2,800 $1,200 $26,700 $40,000 = $2,900 $80,000 0 $2,800 $500
g $4,000 $4,000
Balance $18,500 $2,800 $1,200 $26,700 $40,000 = $2,900 $80,000 0 $6,800 $500
h (3,275) $3,275
Balance $15,225 $2,800 $1,200 $26,700 $40,000 = $2,900 $80,000 $3,275 $6,800 $500
i $1,800 (1,800)
Balance $17,025 $1,000 $1,200 $26,700 $40,000 = $2,900 $80,000 $3,275 $6,800 $500
j (700) (700)
Balance 16,325 $1,000 $1,200 $26,700 $40,000 = $2,200 $80,000 $3,275 $6,800 $500
k (1,800) $1,800
Balance $14,525 $1,000 $1,200 $26,700 $40,000 = $2,200 $80,000 $3,275 $6,800 $2,300

2.

Net income=Revenue-expenses

=$6,800-$2,300

=$4,500

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