Question

Santana Rey created Business Solutions on October 1, 2019. The company has been successful, and its list of customers has grown. To accommodate the growth, the accounting system is modified to set up separate accounts for each customer. The following chart of accounts includes the account number used for each account and any balance as of December 31, 2019. Santana Rey decided to add a fourth digit with a decimal point to the 106 account number that had been used for the single Accounts Receivable account. This change allows the company to continue using the existing chart of accounts.

No.	Account Title	Debit			Credit
101	Cash	$	48,522
106.1	Alex’s Engineering Co.		0
106.2	Wildcat Services		0
106.3	Easy Leasing		0
106.4	IFM Co.		3,070
106.5	Liu Corp.		0
106.6	Gomez Co.		2,838
106.7	Delta Co.		0
106.8	KC, Inc.		0
106.9	Dream, Inc.		0
119	Merchandise inventory		0
126	Computer supplies		700
128	Prepaid insurance		1,962
131	Prepaid rent		875
163	Office equipment		8,180
164	Accumulated depreciation—Office equipment				$	340
167	Computer equipment		20,500
168	Accumulated depreciation—Computer equipment					1,080
201	Accounts payable					1,190
210	Wages payable					980
236	Unearned computer services revenue					1,400
307	Common stock					73,097
318	Retained earnings					8,560
319	Dividends		0
403	Computer services revenue					0
413	Sales					0
414	Sales returns and allowances		0
415	Sales discounts		0
502	Cost of goods sold		0
612	Depreciation expense—Office equipment		0
613	Depreciation expense—Computer equipment		0
623	Wages expense		0
637	Insurance expense		0
640	Rent expense		0
652	Computer supplies expense		0
655	Advertising expense		0
676	Mileage expense		0
677	Miscellaneous expenses		0
684	Repairs expense—Computer		0

In response to requests from customers, S. Rey will begin selling computer software. The company will extend credit terms of 1/10, n/30, FOB shipping point, to all customers who purchase this merchandise. However, no cash discount is available on consulting fees. Additional accounts (Nos. 119, 413, 414, 415, and 502) are added to its general ledger to accommodate the company’s new merchandising activities. Its transactions for January through March follow:

Jan.		4		The company paid cash to Lyn Addie for five days’ work at the rate of $245 per day. Four of the five days relate to wages payable that were accrued in the prior year.
		5		Santana Rey invested an additional $24,700 cash in the company in exchange for more common stock.
		7		The company purchased $7,000 of merchandise from Kansas Corp. with terms of 1/10, n/30, FOB shipping point, invoice dated January 7.
		9		The company received $2,838 cash from Gomez Co. as full payment on its account.
		11		The company completed a five-day project for Alex’s Engineering Co. and billed it $5,480, which is the total price of $6,880 less the advance payment of $1,400. The company debited Unearned Computer Services Revenue for $1,400.
		13		The company sold merchandise with a retail value of $4,600 and a cost of $3,490 to Liu Corp., invoice dated January 13.
		15		The company paid $780 cash for freight charges on the merchandise purchased on January 7.
		16		The company received $4,060 cash from Delta Co. for computer services provided.
		17		The company paid Kansas Corp. for the invoice dated January 7, net of the discount.
		20		The company gave a price reduction (allowance) of $700 to Liu Corp., and credited Liu's accounts receivable for that amount.
		22		The company received the balance due from Liu Corp., net of the discount and the allowance.
		24		The company returned defective merchandise to Kansas Corp. and accepted a credit against future purchases (debited accounts payable). The defective merchandise invoice cost, net of the discount, was $486.
		26		The company purchased $9,500 of merchandise from Kansas Corp. with terms of 1/10, n/30, FOB destination, invoice dated January 26.
		26		The company sold merchandise with a $4,640 cost for $5,910 on credit to KC, Inc., invoice dated January 26.
		31		The company paid cash to Lyn Addie for 10 days’ work at $245 per day.
Feb.		1		The company paid $2,625 cash to Hillside Mall for another three months’ rent in advance.
		3		The company paid Kansas Corp. for the balance due, net of the cash discount, less the $486 credit from merchandise returned on January 24.
		5		The company paid $590 cash to Facebook for an advertisement to appear on February 5 only.
		11		The company received the balance due from Alex’s Engineering Co. for fees billed on January 11.
		15		The company paid a $4,750 cash dividend.
		23		The company sold merchandise with a $2,660 cost for $3,400 on credit to Delta Co., invoice dated February 23.
		26		The company paid cash to Lyn Addie for eight days’ work at $245 per day.
		27		The company reimbursed Santana Rey $160 cash for business automobile mileage. The company recorded the reimbursement as "Mileage Expense."
Mar.		8		The company purchased $2,840 of computer supplies from Harris Office Products on credit with terms of n/30, FOB destination, invoice dated March 8.
		9		The company received the balance due from Delta Co. for merchandise sold on February 23.
		11		The company paid $930 cash for minor repairs to the company’s computer.
		16		The company received $5,290 cash from Dream, Inc., for computing services provided.
		19		The company paid the full amount due of $4,030 to Harris Office Products, consisting of amounts created on December 15 (of $1,190) and March 8.
		24		The company billed Easy Leasing for $9,057 of computing services provided.
		25		The company sold merchandise with a $2,042 cost for $2,890 on credit to Wildcat Services, invoice dated March 25.
		30		The company sold merchandise with a $1,058 cost for $2,330 on credit to IFM Company, invoice dated March 30.
		31		The company reimbursed Santana Rey $288 cash for business automobile mileage. The company recorded the reimbursement as "Mileage Expense."

The following additional facts are available for preparing adjustments on March 31 prior to financial statement preparation:

1. The March 31 amount of computer supplies still available totals $2,055.
2. Prepaid Insurance coverage of $654 expired during this 3-month period.
3. Lyn Addie has not been paid for seven days of work at the rate of $245 per day.
4. Prepaid rent of $2,625 expired during this 3-month period.
5. Depreciation on the computer equipment for January 1 through March 31 is $1,080.
6. Depreciation on the office equipment for January 1 through March 31 is $340.
7. The March 31 amount of merchandise inventory still available totals $704.

Required:
1. Prepare journal entries to record each of the January through March transactions.

2. Post the journal entries in part 1 to the accounts in the company’s general ledger. Note: Begin with the ledger’s post-closing adjusted balances as of December 31, 2019.

3. Prepare a 6-column work sheet that includes the unadjusted trial balance, the March 31 adjustments (a) through (g), and the adjusted trial balance. Do not prepare closing entries and do not journalize the adjustments or post them to the ledger.

4. Prepare an income statement (from the adjusted trial balance in part 3) for the three months ended March 31, 2020.

(a) Use a single-step format. List all expenses without differentiating between selling expenses and general and administrative expenses.
(b) Use a multiple-step format that begins with gross sales (service revenues plus gross product sales) and includes separate categories for net sales, cost of goods sold, selling expenses, and general and administrative expenses. Categorize the following accounts as selling expenses: Wages Expense, Mileage Expense, and Advertising Expense. Categorize the remaining expenses as general and administrative.

5. Prepare a statement of retained earnings (from the adjusted trial balance in part 3) for the three months ended March 31, 2020.

6. Prepare a classified balance sheet (from the adjusted trial balance) as of March 31, 2020.

Answer 1

General Journal J1 59 Credit Date Account Title & explanation 4-Jan Wages expense Wages payable Cash Ref. 623 210 101 Debit 245 980 1225 5-Jan Cash 24700 101 307 Common Stock 24700 7000 7-Jan Merchandise Inventory Accounts Payable 119 201 7000 2838 9-Jan Cash Accounts Receivable—Gomez Co 101 106.6 2838 5480 11-Jan Accounts Receivable—Alex's Eng. Co Unearned Computer Services Revenue Computer Services Revenue 106.1 236 403 1400 6880 4,600 13-Jan Accounts Receivable—Liu Corp Sales 106.5 413 4600 79 80 3490 13-Jan Cost of Goods Sold Merchandise Inventory 502 119 3490

83 119 780 15-Jan Merchandise Inventory Cash 84 101 780 86 16-Jan Cash 4060 101 403 Computer Services Revenue 4060 88 89 90 7000 17-Jan Accounts Payable Merchandise Inventory Cash 201 119 101 70 6930 700 20-Jan Sales Returns and Allowances Accounts Receivable—Liu Corp 414 106.5 700 22-Jan Cash Sales Discount Accounts Receivable—Liu Corp 101 415 106.5 3861 39 98 3,900 486 24-Jan Accounts Payable Merchandise Inventory 201 119 486 99 100 101 102 103 104 105 106 107 9500 26-Jan Merchandise Inventory Accounts Payable 119 201 9500 5910 26-Jan Accounts Receivable—KC, Inc Sales 106.8 413 5910

502 4640 26-Jan Cost of Goods Sold Merchandise Inventory 119 4640 623 2450 109 110 111 112 113 114 115 116 117 31-Jan Wages expense Cash 101 2450 2,625 1-Feb Prepaid Rent Cash 131 101 2625 9014 119 3-Feb Accounts Payable Merchandise Inventory Cash 201 119 101 95 8919 120 121 590 122 123 124 5-Feb Advertising Expense Cash 655 101 590 5480 125 126 127 11-Feb Cash Accounts Receivable—Alex's Eng. Co 101 106.1 5480 4,750 128 129 15-Feb Dividend Cash 302 101 4750 130 131 132 23-Feb Accounts Receivable—Delta Co Sales 106.7 413 3400 3400

502 2660 134 23-Feb Cost of Goods Sold Merchandise Inventory 135 119 2660 136 1960 101 1960 676 160 137 26-Feb Wages expense 138 Cash 139 140 27-Feb Mileage Expense 141 Cash 142 143 8-Mar Computer Supplies 144 Accounts Payable 101 160 126 201 2840 2840 145 3400 146 147 101 106.7 3400 684 101 930 930 5290 9-Mar Cash Accounts Receivable-Delta Co 148 149 11-Mar Repairs Expense-Computer 150 Cash 151 152 16-Mar Cash Computer Services Revenue 154 155 19-Mar Accounts Payable 156 Cash 157 158 24-Mar Accounts Receivable-Easy Leasing 159 Computer Services Revenue 101 403 153 5290 201 4030 101 4030 9057 106.3 403 9057

106.2 413 2890 2890 2042 502 119 2042 167 2330 161 25-Mar Accounts Receivable-Wildcat Services 162 Sales 163 164 Cost of Goods Sold 165 Merchandise Inventory 166 30-Mar Accounts Receivable—IFM Co 168 Sales 169 170 Cost of Goods Sold Merchandise Inventory 172 173 31-Mar Mileage Expense Cash 106.4 413 2330 502 119 1058 171 1058 288 676 101 174 288

Cash Account No. 101 Ref. Debit 24700 2838 4060 3861 Date Transaction Description 31-Dec Balance 4-Jan 5-Jan 9-Jan 15-Jan 16-Jan 17-Jan 22-Jan 31-Jan 1-Feb 3-Feb 5-Feb 11-Feb 15-Feb 26-Feb 27-Feb 9-Mar 11-Mar 16-Mar 19-Mar 31-Mar Credit Balance 48,522 1225 47297 71997 74835 780 74055 78115 6930 71185 75046 2450 72596 2625 69971 8919 61052 590 60462 65942 4750 61192 1960 59232 160 59072 62472 930 61542 66832 4030 62802 288 62514 5480 3400 5290

Accounts Receivable-Alex's Engineering Co. Acct. No. 106.1 | Date Transaction Description Ref. | Debit Credit Balancel 31-Dec Balance 11-Jan 5480 5480 11-Feb 54800 Acct. No. 106.2 | Ref. | Debit Credit Balance Accounts Receivable-Wildcat Services | Date Transaction Description 31-Dec Balance 25-Mar 2890 2890 Accounts Receivable-Easy Leasing | Date | Transaction Description 31-Dec Balance 24-Mar Ref. Acct. No. 106.3 Debit Credit Balance 9057 9057 Accounts Receivable-IFM Co. | Date Transaction Description 31-Dec Balance 30-Mar Acct. No. 106.4 | Ref. | Debit Credit Balance 3,070 2330 5400

Acct. No. 106.5 Credit Balance | Ref. Debit Accounts Receivable-Liu Corporation | Date Transaction Description 31-Dec Balance 13-Jan 20-Jan 22-Jan 4600 4600 700 3900 39000 Ref. Accounts Receivable-Gomez Co. Date Transaction Description 31-Dec Balance 9-Jan Acct. No. 106.6 Debit Credit Balance 2,838 2838 0 Acct. No. 106.7 Debit Credit Balance Ref. Accounts Receivable-Delta Co. Date Transaction Description 31-Dec Balance 23-Feb 9-Mar 3400 3400 0 3400 Accounts Receivable-KC Inc. Date Transaction Description 31-Dec Balance 26-Jan Ref. Debit Acct. No. 106.8 Credit Balance 5910 5910

Accounts Receivable-Dream Inc. | Date Transaction Description 31-Dec Balance Acct. No. 106.9 Credit Balance Ref. Debit Acct. No. 119 Debit Credit Balance Ref. 7000 96 3490 97 780 98 Merchandise inventory Date Transaction Description 31-Dec Balance 7-Jan 13-Jan 15-Jan 17-Jan 24-Jan 26-Jan 26-Jan 3-Feb 23-Feb 25-Mar 30-Mar 31-Mar 70 486 99 100 9500 101 7000 3510 4290 4220 3734 13234 8594 8499 5839 3797 2739 704 103 104 4640 95 2660 2042 1058 2035 105 108 109 Ref. Acct. No. 126 Credit Balance Debit 110 Computer Supplies | Date Transaction Description 31-Dec Balance 8-Mar 31-Mar 700 111 2840 112 3540 2055 1485

114 115 Ref. Prepaid Insurance Date Transaction Description 31-Dec Balance 31-Mar Acct. No. 128 Debit Credit Balance 1,962 654 1,308 116 117 118 119 Ref. 120 121 122 123 124 Prepaid Rent | Date Transaction Description 31-Dec Balance 1-Feb 31-Mar Acct. No. 131 Debit Credit Balance 1 875 2625 3500 2625 875 126 Office equipment Date Transaction Description 31-Dec Balance Ref. Debit Acct. No. 163 Credit Balance 8,180 128 129 130 131 Accumulated Depreciation - Office Equipment Date Transaction Description Ref. 31-Dec Balance 31-Mar Acct. No. 164 Debit Credit Balance 340 340 680 132 134 135 Computer equipment Date Transaction Description 31-Dec Balance Ref. 136 137 Debit Acct. No. 167 Credit Balance 20,500 138

140 Accumulated Depreciation - ComputerEquipment | Date Transaction Description Ref. 31-Dec Balance 31-Mar Acct. No. 168 Debit Credit Balance 1,080 1080 1080 142 143 144 145 146 Ref. 147 148 149 Accounts Payable Date Transaction Description 31-Dec Balance 7-Jan 17-Jan 24-Jan 26-Jan 3-Feb 8-Mar 19-Mar Acct. No. 201 Debit Credit Balance 1,190 7000 8190 7000 1190 486 704 9500' 10204 9014 2840' 4030 4030 151 1190 154 156 157 158 Ref. 159 Wages Payable Date Transaction Description 31-Dec Balance 4-Jan 31-Mar Acct. No. 210 Debit Credit Balance 980 9800 1715 1715 160 161

163 164 Ref. Unearned Computer Service revenue Date Transaction Description 31-Dec Balance 11-Jan Acct. No. 236 Debit Credit Balance 1400 1400 165 166 167 168 169 170 171 172 173 Common Stock Date Transaction Description 31-Dec Balance 5-Jan Ref. Acct. No. 301 Debit Credit Balance 73097 24700 97797 174 175 176 177 178 179 | Ref. Retained Earnings | Date Transaction Description 31-Dec Balance 15-Feb Acct. No. 302 Debit Credit Balance 8560 4750 13310 180

183 184 | Ref. | Debit 185 186 187 188 189 190 Computer Service Revenue Date Transaction Description 11-Jan 16-Jan 16-Mar 24-Mar Acct. No. 403 Credit Balance 6880 6880 4060 10940 5290 16230 9057 25287 191 192 Transaction Description Ref. 193 194 Sales Date 13-Jan 26-Jan 23-Feb 25-Mar 30-Mar Acct. No. 413 Debit Credit Balance 4600 4600 5910 10510 3400 13910 2890 16800 2330 19130 195 196 197 198 199 200 Sales return& allowances | Date Transaction Description 20-Jan | Ref. Acct. No. 414 Debit Credit Balance 700 700 204 205 206 207 Sales Discount | Date Transaction Description 22-Jan Acct. No. 415 | Ref. | Debit Credit Balance 39 39

210 Ref. 212 Cost of Goods Sold Date Transaction Description 13-Jan 26-Jan 23-Feb 25-Mar 30-Mar Mar-31 Acct. No. 502 Debit Credit Balance 3490 3490 4640 8130 2660 10790 2042 12832 1058 13890 2035 15925 214 215 216 217 218 219 220 Depreciation expense - Office Equipment Date Transaction Description Ref. Acct. No. 612 Debit Credit Balance 340 340 221 223 Depreciation expense -Computer Equipment Date Transaction Description Ref. Mar-31 Acct. No. 613 Debit Credit Balance 1140 1140 228 229 231 Wages expense | Date Transaction Description 4-Jan 31-Jan 26-Feb Mar-31 Acct. No. 623 | Ref. | Debit Credit Balance 245 245 2450 2695 1960 4655 1715 6370 232 233 234

237 Insurance expense Date Transaction Description 31-Mar Ref. Acct. No. 637 Debit Credit Balance 654 654 239 240 241 242 Rent expense | Date Transaction Description 31-Mar Acct. No. 640 | Ref. | Debit Credit Balance 2625 2625 243 244 245 Computer Supplies expense Date Transaction Description 31-Mar Ref. Acct. No. 652 Debit Credit Balance 1485 1485 248 251 Advertising expense | Date Transaction Description 5-Feb Acct. No. 655 | Ref. | Debit Credit Balance 590 590 252 253 254 255 256 257 Ref. Mileage expense | Date Transaction Description 27-Feb 31-Mar Acct. No. 676 Debit Credit Balance 160 160 288 448 259

266 Repairs expense - Computer Date Transaction Description 11-Mar Ref. Acct. No. 684 Debit Credit Balance 930 930 269 270

SUCCESS SYSTEMS Partial Work Sheet March 31, 2017 Unadjusted Trial Income Balance Adjustments Adjusted Trial balance Statement Dr. Cr. Dr. Cr. Dr. Cr. Debit Credit 62,514 62,514 Balance Sheet Credit Debit 62,514 2,890 9,057 5,400 2,890 9,057 5,400 2,890 9,057 5,400 0 13 101 14 106.1 15 106.2 16 106.3 17 106.4 18 106.5 19 106.6 20 106.7 21 106.8 22 106.9 23 119 24 126 Account title Cash Alex's Engineering Co. Wildcat Services Easy Leasing IMF Co. Liu Corporation Gomez Co. Delta Co. KC, Inc. Dream, Inc. Merchandise inventory Computer supplies Prepaid insurance Prepaid rent Office equipment Accumulated depreciation- Office equipment Computer equipment 5,910 5,910 2,035 1,485 2,739 3,540 1,962 3,500 8,180 704 2,055 1,308 5,910 0 704 2,055 1,308 875 8,180 25 128 26 131 163 654 2,625 875 8,180 28 164 340 340 680 680 167 20,500 20,500 20,500

32. 168 1,080 1,080 2,160 2,160 33 201 34 210 1,715 1,715 1,715 236 97,797 97,797 97,797 4,750 4,750 $4,750 $8,560 37 307 38 39 319 40 403 41 413 42 414 43 415 44 502 8,560 25,287 19,130 8,560 25,287 19,130 | 25,287 19,130 700 Accumulated depreciation- Computer equip. Accounts payable Wages payable Unearned computer services revenue Common Stock Dividend Retained Earnings Computer services revenue Sales Sales returns and allow. Sales discounts Cost of goods sold Depreciation expense- Office equipment Depreciation expense- Computer equipment Wages expense Insurance expense Rent expense Computer supplies expense Advertising expense Mileage expense Repairs expense-Computer 700 39 13,890 700 39 15,925 39 2,035 15,925 340 340 340 4,655 49 623 50 637 51 640 52 652 53 655 54 676 55 684 1,080 1.715 654 2,625 1,485 1,080 6,370 654 2.625 1,485 590 448 930 1,080 6,370 654 2,625 1,485 590 448 930) 590 448 930

684 Repairs expense-Computer Totals 930 152,194 152,194 9,934 9,934 930 9301 155,329155,32931,186 44,417 13,231 $44,417 $44,417 124,143 110,912 13,231 $124,143 $124,143

SUCCESS SYSTEMS Income Statement For Three Months Ended March 31, 2020 25287 18391 43678 Revenues Computer services revenue Net sales Total revenues Expenses Cost of goods sold Depreciation expense-Office equipment Depreciation expense-Computer equipment Wages expense Insurance expense Rent expense Computer supplies expense Advertising expense Mileage expense Repairs expense—Computer Total expenses Net Income 15925 340 1080 6370 654 2625 1485 590 448 930 30447 13231

Opening Balance of Retained Earnings Add net Income Less Dividend Ending Retained earnings SUCCESS SYSTEMS Statement of Retained Earnings For Three Months Ended March 31, 2020 8560 13231 4750 8481 17041

SUCCESS SYSTEMS Balance Sheet As On March 31, 2020 62,514 23,257 704 2,055 1,308 875 90,713 Assets Current assets Cash Accounts receivable Merchandise inventory Computer supplies Prepaid insurance Prepaid rent Total current assets Plant assets Office equipment Accumulated depreciation—Office equipment Office equipment ,net Computer equipment Accumulated depreciation—Computer equipment Computer equipment.net Total plant assets Total assets 8,180 680 7,500 20,500 2,160 18,340 25,840 116,553

Liabilities Current liabilities Wages payable 1,715 Equity Common Stock Retained Earnings Total Equity Total liabilities and equity 97,797 17,041 114,838 116,553