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One year ago, Allan Thorpe founded Alcazar Sales Company, and the business has prospered. Allan comes to you for advice. He wishes to know how much net income the business earned during the past year. The accounting records consist of the T-accounts in the ledger, which were prepared by an accountant who has resigned from the company. The accounts at December 31, are as follows:
Cash
Bal. 5,800 Bal. 12,300 Bal. 2,800 Bal. 2,600
Equipment Accumulated Dep. Equip. Accounts Payable
Bal. 52,000 18,500 Bal.
Salaries Payable Unearned Revenue Collins Capital , Collins Withdrawals
4,100 Bal. 40,000 Bal, Bal. 50,000
Service Revenue Salaries Expense Dep. Expense-equipment
80,700 Bal. Bal. 17,000
Advertising Expense Utilities Expense Supplies Expense
Bal 800
Allan indicates that, at year-end, customers owe him $1,000 accrued service revenue, which he expects to collect early next year. These revenues have not been recorded. During the year, he collected $4,100 service revenue in advance from customers, but the business has earned only $800 of that amount. During the year he has incurred $2,400 of advertising expense, but he has not yet paid for it. In addition, he has used up $2,100 of the supplies. Allan determines that
Allan expresses concern that drawing during the year might have exceeded the business’s net income. To get a loan to expand the business, Allan must show the bank that the business’s owner’s equity has grown from its original $40,000 balance. You and Allan agree that you will meet again in one week.
Requirement:
1. Has the owner’s equity grown from its original $40,000 balance.? Can Mr. Thorpe expect to get the loan? Give your reason(s).
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