Question

After the success of the company’s first two months, Santana Rey continues to operate Business Solutions. The November 30, 2019, unadjusted trial balance of Business Solutions (reflecting its transactions for October and November of 2019) follows.

No.	Account Title	Debit			Credit
101	Cash	$	38,264
106	Accounts receivable		12,618
126	Computer supplies		2,545
128	Prepaid insurance		2,220
131	Prepaid rent		3,300
163	Office equipment		8,000
164	Accumulated depreciation—Office equipment				$	0
167	Computer equipment		20,000
168	Accumulated depreciation—Computer equipment					0
201	Accounts payable					0
210	Wages payable					0
236	Unearned computer services revenue					0
301	S. Rey, Capital					73,000
302	S. Rey, Withdrawals		5,600
403	Computer services revenue					25,659
612	Depreciation expense—Office equipment		0
613	Depreciation expense—Computer equipment		0
623	Wages expense		2,625
637	Insurance expense		0
640	Rent expense		0
652	Computer supplies expense		0
655	Advertising expense		1,728
676	Mileage expense		704
677	Miscellaneous expenses		250
684	Repairs expense—Computer		805
	Totals	$	98,659		$	98,659

Business Solutions had the following transactions and events in December 2019.

Dec.	2		Paid $1,025 cash to Hillside Mall for Business Solutions’ share of mall advertising costs.
	3		Paid $500 cash for minor repairs to the company’s computer.
	4		Received $3,950 cash from Alex’s Engineering Co. for the receivable from November.
	10		Paid cash to Lyn Addie for six days of work at the rate of $125 per day.
	14		Notified by Alex’s Engineering Co. that Business Solutions’ bid of $7,000 on a proposed project has been accepted. Alex’s paid a $1,500 cash advance to Business Solutions.
	15		Purchased $1,100 of computer supplies on credit from Harris Office Products.
	16		Sent a reminder to Gomez Co. to pay the fee for services recorded on November 8.
	20		Completed a project for Liu Corporation and received $5,625 cash.
22–26			Took the week off for the holidays.
	28		Received $3,000 cash from Gomez Co. on its receivable.
	29		Reimbursed S. Rey for business automobile mileage (600 miles at $0.32 per mile).
	31		S. Rey withdrew $1,500 cash from the company for personal use.

The following additional facts are collected for use in making adjusting entries prior to preparing financial statements for the company’s first three months.

1. The December 31 inventory count of computer supplies shows $580 still available.
2. Three months have expired since the 12-month insurance premium was paid in advance.
3. As of December 31, Lyn Addie has not been paid for four days of work at $125 per day.
4. The computer system, acquired on October 1, is expected to have a four-year life with no salvage value.
5. The office equipment, acquired on October 1, is expected to have a five-year life with no salvage value.
6. Three of the four months' prepaid rent have expired.

Required:
1. Prepare journal entries to record each of the December transactions and events for Business Solutions.
2-a. Prepare adjusting entries to reflect a through f.
2-b. Post the journal entries to record each of the December transactions, adjusting entries to the accounts in the ledger.
3. Prepare an adjusted trial balance as of December 31, 2019.
4. Prepare an income statement for the three months ended December 31, 2019.
5. Prepare a statement of owner’s equity for the three months ended December 31, 2019.
6. Prepare a balance sheet as of December 31, 2019.

Answer 1

Business Solutions
Req 1
Journal entries
Date	Account	Debit	Credit	Calculation
2-Dec	Advertising expense	1,025
	Cash		1,025
3-Dec	Repairs expense-Computer	500
	Cash		500
4-Dec	Cash	3,950
	Accounts Receivable		3,950
10-Dec	Wages expense	750		=6*125
	Cash		750
14-Dec	Cash	1,500
	Unearned Computer Services Revenue		1,500
15-Dec	Computer Supplies	1,100
	Accounts Payable		1,100
16-Dec	No entry
20-Dec	Cash	5,625
	Computer Services Revenue		5,625
Dec 22-26	No entry
28-Dec	Cash	3,000
	Accounts Receivable		3,000
29-Dec	Mileage expense	192		=600*0.32
	Cash		192
31-Dec	S. Rey, Withdrawals	1,500
	Cash		1,500
Req 2-a
Adjusting entries
31-Dec	Computer supplies expense	3,065		=2,545+1,100-580
	Computer Supplies		3,065
31-Dec	Insurance expense	555		=2,220/12*3
	Prepaid Insurance		555
31-Dec	Wages expense	500		=4*125
	Wages Payable		500
31-Dec	Depreciation expense-Computer Equipment	1,250		=20,000/4*3/12
	Accumulated Depreciation-Computer Equipment		1,250
31-Dec	Depreciation expense-Office Equipment	400		=8,000/5*3/12
	Accumulated Depreciation-Office Equipment		400
31-Dec	Rent expense	2,475		=3,300/4*3
	Prepaid Rent		2,475
Date	Account	Debit	Credit	Calculation
Req 7
Closing entries
31-Dec	Computer Services Revenue	31,284
	Income Summary		31,284
31-Dec	Income Summary	16,824
	Depreciation expense-Office Equipment		400
	Depreciation expense-Computer Equipment		1,250
	Wages expense		3,875
	Insurance expense		555
	Rent expense		2,475
	Computer supplies expense		3,065
	Advertising expense		2,753
	Mileage expense		896
	Miscellaneous expense		250
	Repairs expense-Computer		1,305
31-Dec	Income Summary	14,460		=31,284-16,824
	S. Rey, Capital		14,460
31-Dec	S. Rey, Capital	7,100
	S. Rey, Withdrawals		7,100

Balance Date Debit Credit Prepaid Insurance Op bal $2,220 31-Dec $ 555 $ 2,220 $ 1,665 Business Solutions Req 2-b T Accounts Date Debit Credit Balance Date Debit Credit Balance Date Debit Credit Balance Cash Accounts Receivable Computer Supplies Op bal $38,264 $38,264 Op bal $12,618 $ 12,618 Op bal $ 2,545 $ 2,545 2-Dec $ 1,025 $37,239 4-Dec $ 3,950 $ 8,668 15-Dec $ 1,100 $ 3,645 3-Dec $ 500 $ 36,739 28-Dec $ 3,000 $ 5,668 31-Dec $ 3,065 $ 580 4-Dec $ 3,950 $ 40,689 10-Dec $ 750 $ 39,939 14-Dec $ 1,500 $ 41,439 20-Dec $ 5,625 $ 47,064 28-Dec $ 3,000 $ 50,064 29-Dec $ 192 $49,872 31-Dec $ 1,500 $ 48,372 Office Equip Accum. Depr. - Office Equip Computer Equipment Op bal $ 8,000 $ 8,000 31-Dec $ 400 $ 400 Op bal $20,000 $ 20,000 Prepaid Rent Accounts Payable Wages Payable Op bal $ 3,300 $ 3,300 15-Dec $ 1,100 $ 1,100 31-Dec $ 500 $ 500 31-Dec $ 2,475 $ 825 Date Debit Credit Balance Date Debit Credit Balance Date Debit Credit Balance S. Rey, Capital S. Rey, Withdrawals Income Summary Op bal $ 73,000 $ 73,000 Op bal $ 5,600 $ 5,600 31-Dec $ 31,284 $31,284 31-Dec $ 14,460 $ 87,460 31-Dec $ 1,500 $ 7,100 31-Dec $ 16,824 $ 14,460 31-Dec $ 7,100 $ 80,360 31-Dec $ 7,100 $ - 31-Dec $ 14,460 Computer Services Revenue Depreciation expense-Office Equipment Depreciation expense-Computer Equip Op bal $ 25,659 $ 25,659 31-Dec $ 400 $ 40031-Dec $ 1,250 $ 1,250 20-Dec $ 5,625 $31,284 31-Dec $ 400 $ - 31-Dec $ 1,250 $ . 31-Dec $ 31,284 $ - Accum. Depr. - Computer Equip 31-Dec $ 1,250 $ 1,250 Unearned Computer Services Revenue 14-Dec $ 1,500 $ 1,500 Date Debit Credit Balance S . Wages expense Op bal $ 2,625 $ 2,625 10-Dec $ 750 $ 3,375 31-Dec $ 500 $ 3,875 31-Dec $ 3,875 $ - Advertising expense Op bal $ 1,728 $ 1,728 2-Dec $ 1,025 $ 2,753 31-Dec $ 2,753 $ . Insurance expense 31-Dec $ 555 31-Dec $ 555 $ $ 555 - Rent expense 31-Dec $ 2,475 31-Dec $ 2,475 $ 2,475 $ - Computer supplies expense 31-Dec $ 3,065 $ 3,065 31-Dec $ 3,065 $ - Mileage expense Op bal $ 704 29-Dec $ 192 31-Dec $ 896 $ $ $ Miscellaneous expense 704 Op bal $ 250 $ 896 31-Dec $ 250 $ . 250 . Repairs expense-Computer Op bal $ 805 $ 805 3-Dec $ 500 $ 1,305 31-Dec $ 1,305 $ -

		Req 3
Business Solutions		Adjusted TB
Account Names		Debit	Credit
Cash		48,372
Accounts Receivable		5,668
Computer Supplies		580
Prepaid Insurance		1,665
Prepaid Rent		825
Office Equipment		8,000
Accumulated Depreciation-Office Equipment			400
Computer Equipment		20,000
Accumulated Depreciation-Computer Equipment			1,250
Accounts Payable			1,100
Wages Payable			500
Unearned Computer Services Revenue			1,500
S. Rey, Capital			73,000
S. Rey, Withdrawals		7,100
Computer Services Revenue			31,284
Depreciation expense-Office Equipment		400
Depreciation expense-Computer Equipment		1,250
Wages expense		3,875
Insurance expense		555
Rent expense		2,475
Computer supplies expense		3,065
Advertising expense		2,753
Mileage expense		896
Miscellaneous expense		250
Repairs expense-Computer		1,305
Totals		109,034	109,034

31,284 Req 4 Business Solutions Income Statement For three months ended Dec 31, 2019 Computer Services Revenue Expenses Depreciation expense-Office Equipment Depreciation expense-Computer Equipment Wages expense Insurance expense Rent expense Computer supplies expense Advertising expense Mileage expense Miscellaneous expense Repairs expense-Computer Total Expenses Net Income 400 1,250 3,875 555 2,475 3,065 2,753 896 250 1,305 16,824 14,460 73,000 Req 5 Statement of Owners Equity For three months ended Dec 31, 2019 Capital, Oct 1, 2019 Net Income Subtotal Less: Withdrawals Capital, Dec 31, 2019 14,460 87,460 (7,100) 80,360

Reg 6 Business Solutions Balance Sheet As of Dec 31, 2019 Assets Current Assets Cash Accounts Receivable Computer Supplies Prepaid Insurance Prepaid Rent Total Current Assets 48,372 5,668 580 1,665 825 57,110 Fixed Assets Office Equipment Accumulated Depreciation Office Equipment Computer Equipment Accumulated Depreciation-Computer Equipment Total Fixed Assets Total Assets 8,000 (400) 7,600 20,000 (1,250) 18,750 26,350 83,460 Liabilities & Equity Liabilities Accounts Payable Wages Payable Unearned Computer Services Revenue Total Liabilities 1,100 500 1,500 3,100 Equity Capital Total Liabilities & Equity 80,360 83,460