Question

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 in exchange for its common stock.

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. The company paid \)3,275 cash in dividends to the owner (sole shareholder).

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.

Required 2. Determine the company’s net income.

Short answer

The net income of Biz Consulting is $4,500.

Step-by-step solution

Calculation of revenue

$\begin{array}{rcl}\mathrm{Revenue}& =& \mathrm{F}\mathrm{Financial}\mathrm{plan}+\mathrm{G}\mathrm{Financial}\mathrm{plan}\\ & =& \$2,800+\$4,000\\ & =& \$6,800\end{array}$

Calculation of expenses

$\begin{array}{rcl}\mathrm{Expenses}& =& \mathrm{Advertising}+\mathrm{Wages}\mathrm{expense}\\ & =& \$500+\$1,800\\ & =& \$2,300\end{array}$

Calculation of net Income

$\begin{array}{rcl}\mathrm{Net}\mathrm{income}& =& \mathrm{Revenue}-\mathrm{Expenses}\\ & =& \$6,800-\$2,300\\ & =& \$4,500\end{array}$