Question

After the success of the company’s first two months, Santana Rey continues to operate Business Solutions. The November 30, 2017, unadjusted trial balance of Business Solutions (reflecting its transactions for October and November of 2017) follows.

No.	Account Title	Debit			Credit
101	Cash	$	38,764
106	Accounts receivable		13,518
126	Computer supplies		2,545
128	Prepaid insurance		2,100
131	Prepaid rent		3,160
163	Office equipment		8,200
164	Accumulated depreciation—Office equipment				$	0
167	Computer equipment		23,600
168	Accumulated depreciation—Computer equipment					0
201	Accounts payable					0
210	Wages payable					0
236	Unearned computer services revenue					0
307	Common stock					72,000
318	Retained earnings					0
319	Dividends		6,500
403	Computer services revenue					32,189
612	Depreciation expense—Office equipment		0
613	Depreciation expense—Computer equipment		0
623	Wages expense		2,525
637	Insurance expense		0
640	Rent expense		0
652	Computer supplies expense		0
655	Advertising expense		1,668
676	Mileage expense		684
677	Miscellaneous expenses		190
684	Repairs expense—Computer		735
	Totals	$	104,189		$	104,189

Business Solutions had the following transactions and events in December 2017.   

Dec.	2		Paid $985 cash to Hillside Mall for Business Solutions’ share of mall advertising costs.
	3		Paid $440 cash for minor repairs to the company’s computer.
	4		Received $4,750 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 $120 per day.
	14		Notified by Alex’s Engineering Co. that Business Solutions’ bid of $7,400 on a proposed project has been accepted. Alex’s paid a $2,000 cash advance to Business Solutions.
	15		Purchased $1,500 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 $5,675 cash.
	22–26		Took the week off for the holidays.
	28		Received $3,600 cash from Gomez Co. on its receivable.
	29		Reimbursed S. Rey for business automobile mileage (400 miles at $0.31 per mile).
	31		The company paid $1,200 cash in dividends.

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 $610 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 $120 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 has 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, 2017.
4. Prepare an income statement for the three months ended December 31, 2017.
5. Prepare a statement of retained earnings for the three months ended December 31, 2017.
6. Prepare a balance sheet as of December 31, 2017.
7. Record and post the necessary closing entries as of December 31, 2017.
8. Prepare a post-closing trial balance as of December 31, 2017.

Answer 1

Journal entries
Dec.2	Paid $985 cash to Hillside Mall for Business Solutions’ share of mall advertising costs.
	Advertising costs A/c	Dr.	$985
	To Cash A/c			$985
Dec.3	Paid $440 cash for minor repairs to the company’s computer.
	Computer Repairs A/c	Dr.	$440
	To Cash A/c			$440
Dec.4	Received $4,750 cash from Alex’s Engineering Co. for the receivable from November.
	Cash A/c	Dr.	$4,750
	To Accounts receivable A/c			$4,750
Dec.10	Paid cash to Lyn Addie for six days of work at the rate of $120 per day.
	Wages A/c	Dr.	$        720
	To Cash A/c			$        720
Dec.14	Notified by Alex’s Engineering Co. that Business Solutions’ bid of $7,400 on a proposed project has been accepted. Alex’s paid a $2,000 cash advance to Business Solutions.
	Cash A/c	Dr.	$2,000
	To Advance from Alex's Engi Co			$2,000
	Accounts receivable A/c	Dr.	5400
	To Unearned computer services revenue			5400
Dec.15	Purchased $1,500 of computer supplies on credit from Harris Office Products.
	Computer Supplies A/c	Dr.	$1,500
	To Accounts Payable (Harris Office products) A/c			$1,500
Dec.16	Sent a reminder to Gomez Co. to pay the fee for services recorded on November 8.
	No journal entry for sending reminders
Dec.20	Completed a project for Liu Corporation and received $5,675 cash.
	Took the week off for the holidays.
	Cash A/c	Dr.	$5,675
	To Accounts receivable A/c			$5,675
Dec.28	Received $3,600 cash from Gomez Co. on its receivable.
	Cash A/c	Dr.	$3,600
	To Accounts receivable A/c			$3,600
Dec.29	Reimbursed S. Rey for business automobile mileage (400 miles at $0.31 per mile).
	Mileage Exp A/c	Dr.	$        124
	To Cash A/c			$        124
Dec.31	The company paid $1,200 cash in dividends.
	Dividends A/c	Dr.	$1,200
	To Cash A/c			$1,200

Adjusting entries
The December 31 inventory count of computer supplies shows $610 still available.
	Closing stock of comp supplies A/c	Dr.	$610
	To Trading A/c			$610
Three months have expired since the 12-month insurance premium was paid in advance.
	Prepaid insurance		2,100
	3 months expired (2100*3/12)		525
	So expenses the 3 months insurance premium
	Journal entry
	Insurance Expenses A/c	Dr.	$525
	To Prepaid Insurance A/c			$525
As of December 31, Lyn Addie has not been paid for four days of work at $120 per day.
	Wages A/c (4*120)	Dr.	480
	To Wages payable A/c			480
The computer system, acquired on October 1, is expected to have a four-year life with no salvage value.
	Depreciation Expenses A/c (23600/4)	Dr.	$        5,900
	To Accumulated Depreciation A/c			$    5,900
The office equipment, acquired on October 1, is expected to have a five-year life with no salvage value.
	Depreciation Expenses A/c (8200/5)	Dr.	$        1,640
	To Accumulated Depreciation A/c			$    1,640
Three of the four months' prepaid rent has expired.
	Prepaid rent		3,160
	4 months prepaid		3,160
	3 month prepaid(3160*3/4)		2370
	Journal entries
	Rent expenses A/c	Dr.	$        2,370
	To prepaid Rent A/c			$    2,370

Note 1		$
	Cash A/c balance
	Beginning	38,764
	Less: Advertising Cost	($985)
	Less: Computer repairs	($440)
	Add: Accounts receivable	$4,750
	Less : Salaries	$      (720)
	Add: Advance from Alex	$2,000
	Add: Liu corpoartion	$5,675
	Add: Gomez co	$3,600
	Less: Conveyence	$      (124)
	Less: Dividends	($1,200)
		51,320