Sophia Loren opened an Italian restaurant. Business has been good, and Loren is considering expanding the restaurant

Sophia Loren opened an Italian restaurant. Business has been good, and Loren is considering expanding the restaurant. Loren, who knows little accounting, produced the following financial statements for Little Italy, Inc., at December 31, 2014, the end of the first month of operations: 

 

In these financial statements, all amounts are correct, except for Owners' Equity. Loren heard that total assets should equal total liabilities plus owners' equity, so she plugged in the amount of owners' equity at $49,000 to make the balance sheet come out even. Requirement 1. Sophia Loren has asked whether she should expand the restaurant. Her banker says Loren may be wise to expand if

 (a) net income for the first month reached $10,000 and 

(b) total assets are at least $35,000. It appears that the business has reached these milestones, but Loren doubts whether her financial statements tell the true story. She needs your help in making this decision. Prepare a corrected income statement and balance sheet. (Remember that Retained Earnings, which was omitted from the balance sheet, should equal net income for the first month; there were no dividends.) After preparing the statements, give Sophia Loren your recommendation as to whether she should expand the restaurant. 

Since as per the banker if the net income in the first month reached $10,000 and if the total assets are at least $35,000, S should not expand her business. But as per the corrected income statement and balance sheet, her net income is $9,000 and the total assets are $27,000 only. 

Thus, I would like to recommend S not to expand her business now.