Decision Case 4-1

One year ago, Ralph Collins founded Collins Consignment Sales Company, and the business has prospered. Collins 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 moved. The accounts at December 31, 2016, follow:

Collins indicates that, at year-end, customers owe the business $1,000 accrued service revenue, which the business expects to collect early next year. These revenues have not been recorded. During the year, the business collected $4,100 service revenue in advance from customers, but the business has earned only $800 of that amount. During the year Collins Consignment has incurred $2,400 of advertising expense, but the business has not yet paid for it. In addition, the business has used up $2,100 of the office supplies. Collins determines that depreciation on equipment was $7,000 for the year. At December 31, 2016, the business owes its employee $1,200 accrued salary.

To get a loan to expand the business, Collinsmust show the bank that the businesss stockholders equity has grown from its original $40,000 balance. Has it? You and Collins agree that you will meet again in oneweek.

Requirements

1. Prepare the financial statement that helps address the first issue concerning Collins.
2. Can Collins expect to get the loan? Give your reason(s).