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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	$	48,512
106.1	Alex’s Engineering Co.		0
106.2	Wildcat Services		0
106.3	Easy Leasing		0
106.4	IFM Co.		3,080
106.5	Liu Corp.		0
106.6	Gomez Co.		2,778
106.7	Delta Co.		0
106.8	KC, Inc.		0
106.9	Dream, Inc.		0
119	Merchandise inventory		0
126	Computer supplies		750
128	Prepaid insurance		2,043
131	Prepaid rent		845
163	Office equipment		8,120
164	Accumulated depreciation—Office equipment				$	400
167	Computer equipment		22,000
168	Accumulated depreciation—Computer equipment					1,170
201	Accounts payable					1,110
210	Wages payable					660
236	Unearned computer services revenue					1,470
307	Common stock					73,858
318	Retained earnings					9,460
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 $165 per day. Four of the five days relate to wages payable that were accrued in the prior year.
		5		Santana Rey invested an additional $24,800 cash in the company in exchange for more common stock.
		7		The company purchased $6,200 of merchandise from Kansas Corp. with terms of 1/10, n/30, FOB shipping point, invoice dated January 7.
		9		The company received $2,778 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 $5,300, which is the total price of $6,770 less the advance payment of $1,470. The company debited Unearned Computer Services Revenue for $1,470.
		13		The company sold merchandise with a retail value of $4,800 and a cost of $3,460 to Liu Corp., invoice dated January 13.
		15		The company paid $710 cash for freight charges on the merchandise purchased on January 7.
		16		The company received $4,110 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 $600 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 $496.
		26		The company purchased $9,100 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 $4,620 cost for $5,980 on credit to KC, Inc., invoice dated January 26.
		31		The company paid cash to Lyn Addie for 10 days’ work at $165 per day.
Feb.		1		The company paid $2,535 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 $496 credit from merchandise returned on January 24.
		5		The company paid $490 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 $4,780 cash dividend.
		23		The company sold merchandise with a $2,580 cost for $3,380 on credit to Delta Co., invoice dated February 23.
		26		The company paid cash to Lyn Addie for eight days’ work at $165 per day.
		27		The company reimbursed Santana Rey $64 cash for business automobile mileage. The company recorded the reimbursement as "Mileage Expense."
Mar.		8		The company purchased $2,920 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 $800 cash for minor repairs to the company’s computer.
		16		The company received $5,390 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 $1,110) and March 8.
		24		The company billed Easy Leasing for $9,167 of computing services provided.
		25		The company sold merchandise with a $2,132 cost for $2,880 on credit to Wildcat Services, invoice dated March 25.
		30		The company sold merchandise with a $1,238 cost for $2,380 on credit to IFM Company, invoice dated March 30.
		31		The company reimbursed Santana Rey $224 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 $2,015.
2. Prepaid Insurance coverage of $681 expired during this 3-month period.
3. Lyn Addie has not been paid for seven days of work at the rate of $165 per day.
4. Prepaid rent of $2,535 expired during this 3-month period.
5. Depreciation on the computer equipment for January 1 through March 31 is $1,170.
6. Depreciation on the office equipment for January 1 through March 31 is $400.
7. The March 31 amount of merchandise inventory still available totals $674.

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

Credit Business Solutions Journal entries Date Account 4-Jan Wages Payable Wages expense Cash Debit $ $ Calculation =165*4 660 165 825 $ 24,800 5-Jan Cash Common stock $ 24,800 $ 6,200 7-Jan Merchandise Inventory Accounts Payable $ 6,200 $ 2,778 9-Jan Cash Gomez Co $ 2,778 11-Jan Unearned computer services revenue Alex's Engineering Co Computer services revenue $ $ 1,470 5,300 $ 6,770 $ 4,800 $ 4,800 13-Jan Liu Co Sales Cost of goods sold Merchandise Inventory $ 3,460 $ 3,460 $ 710 15-Jan Merchandise Inventory Cash $ 710 $ 4,110 16-Jan Cash Computer services revenue $ 4,110 $ 6,200 17-Jan Accounts Payable Cash Merchandise Inventory $ $ 6,138 62 =6,200*1% $ 600 20-Jan Sales returns and allowances Liu Co $ 600 22-Jan Cash Sales discounts Liu Co $ $ 4,158 42 -4,200*1% 4,200 =4,800-600 $ $ 501 =496/99 100 24-Jan Accounts Payable Merchandise Inventory $ 501 $ 9,100 26-Jan Merchandise Inventory Accounts Payable $ 9,100 $ 5,980 $ 5,980 26-Jan KC. Inc. Sales Cost of goods sold Merchandise Inventory $ 4,620 $ 4,620 $ 1,650 =165*10 $ 1,650 31-Jan Wages expense Cash Feb 1-Feb Prepaid rent Cash $ 2,535 $ 2,535 $ 8,599 3-Feb Accounts Payable Cash Merchandise Inventory $ $ =9,100-501 8,513 86 +8,599*1% $ 490 5-Feb Advertising expense Cash $ 490 $ 5,300 11-Feb Cash Alex's Engineering Co $ 5,300 $ 4,780 15-Feb Dividends Cash $ 4,780 $ 3,380 $ 3,380 23-Feb Delta Co Sales Cost of goods sold Merchandise Inventory $ 2,580 $ 2,580 $ 1,320 =165*8 26-Feb Wages expense Cash $ 1,320 $ 64 $ 64 27-Feb Mileage expense Cash March 8-Mar Computer supplies Accounts Payable $ 2,920 $ 2,920 $ 3,380 9-Mar Cash Delta Co $ 3,380 $ 800 11-Mar Reapirs expense - Computer Cash $ 800 $ 5,390 16-Mar Cash Computer services revenue $ 5,390 $ 4,030 =1,110+2,920 19-Mar Accounts Payable Cash $ 4,030 $ 9,167 24-Mar Easy Leasing Computer services revenue $ 9,167 $ 2,880 $ 2,880 25-Mar Wildcat Services Sales Cost of goods sold Merchandise Inventory $ 2,132 $ 2,132 $ 2,380 $ 2,380 30-Mar IFM CO Sales Cost of goods sold Merchandise Inventory $ 1,238 $ 1,238 31-Mar Mileage expense $ 224 Cash $ 224

Adjusting entries 31-Mar Computer supplies expense Computer supplies $ 1,655 =750+2,920-2,015 $ 1,655 $ 681 31-Mar Insurance expense Prepaid Insurance $ 681 $ 1,155 =165*7 31-Mar Wages expense Wages Payable $ 1,155 $ 2,535 31-Mar Rent expense Prepaid rent $ 2,535 $ 1,170 31-Mar Depreciation expense - Computer equipment Accumulated Depreciation - Computer equipment $ 1,170 $ 400 31-Mar Depreciation expense - Office equipment Accumulated Depreciation - Office equipment $ 400 $ 657 31-Mar Cost of goods sold Merchandise Inventory $ =1,331-674 657 Unadj Bal - 674

Credit Date Debit Date Credit Wildcat Services - AR Op bal $ . 25-Mar $ 2,880 Date Debit Date Easy Leasing - AR Op bal $ . 24-Mar $ 9,167 Business Solutions Ledger accounts Date Debit Date Credit Date Debit Date Credit Cash Alex's Engineering Co-AR Op bal $ 43,512 4-Jan $ 825 Op bal $ . 5-Jan $ 24,800 15-Jan $ 710 11-Jan $ 5,300 11-Feb $ 5,300 9. Jan $ 2,778 17. Jan $ 6.138 16-Jan $ 4.110 31-Jan $ 1,650 22-Jan $ 4,158 1-Feb $ 2,535 11-Feb $ 5,300 3-Feb $ 8,513 9-Mar $ 3,380 5-Feb $ 490 16-Mar $ 5,390 15. Feb $ 4,780 26-Feb $ 1,320 27-Feb 64 11-Mar $ 800 19-Mar $ 4,030 31-Mar $ 224 Bal $ Bal $ 66,349 IFM CO-AR 3,080 2,380 Bal. $ . Llu CO-AR Op bal $ - 13-Jan $ 4,800 20-Jan $ 22-Jan $ 2,880 Gomez Co-AR 2,773 9 -Jan $ 2,778 Bal $ 9,167 Delta CO-AR Op bal $ . 23-Feb $ 3,380 9-Mar $ 3,380 Op bal Op bal $ 30-Mar $ $ 600 4,200 Bal $ Bal. $ 5,460 KC. Inc. - AR .. 5,980 . Dream Inc. -AR - Bal S . Computer supplies Op bal $ 750 8-Mar $ 2,920 Op bal $ Op bal $ 26-Jan $ Bal. $ . Merchandise Inventory Op bal $ . 7-Jan $ 6,200 13-Jan $ 3,460 15-Jan $ 710 17-Jan $ 62 26-Jan $ 9,100 26-Jan $ 4,620 24-Jan $ 501 3-Feb $ 86 23-Feb $ 2,580 25-Mar $ 2,132 30-Mar $ 1,238 Bal $ Bal. Bal. 5,980 Office Equip 8,120 $ . Accum. Depr.- Office Equip Op bal $ $ 1,331 Computer Equipment $ 22,000 Bal. $ 3,670 Accum. Depr. - Computer Equip Op bal $ 1,170 Op bal $ 400 Op bal Bal $ 400 $ 1,170 $ 3,120 Prepaid Insurance $ 2,043 Bal. Prepaid rent 845 2.535 Bal. Wages Payable 4-Jan $ 650 Op bal Op bal Op bal 1-Feb Bal. $ 22,000 Accounts Payable 17-Jan $ 5,200 Op bal $ 1,110 24-Jan $ 501 7-Jan $ 6,200 3-Feb $ 8,599 26-Jan $ 9,100 19-Mar $ 4,030 8-Mar $ 2,920 $ $ $ 650 Bal. $ - $ . Bal 2013 Unearned computer services revenue 11-Jan $ 1,470 Op bal $ 1,470 $ 3,330 Common stock Op bal $ 73,858 5-Jan $ 24,800 Bal. Retained eamings Op bal Bal. Dividends 15-Feb $ 4,780 $ 9,460 98,658 Bal. $ 9,460 Sales returns and allowances 20-Jan $ 500 Bal. S . Computer services revenue 11-Jan $ 6,770 15-Jan $ 4.110 16-Mar $ 5,390 24-Mar $ 9,167 Bal. $ 4,780 Sales discounts 22-Jan $ 42 Bal. $ sales 13-Jan $ 26-Jan $ 23-Feb $ 25-Mar $ 30-Mar $ 4,800 5,980 3,380 2,890 2,380 $ 25,437 Bal. $ 19,420 Depreciation expense - Office equip Bal. $ 600 Depreciation expense-Computer equip Bal. Cost of goods sold 13-Jan $ 3,460 26-Jan $ 4,620 23-Feb $ 2,580 25-Mar $ 2,132 30-Mar $ 1.238 Bal. $ 42 Wages expense 4-Jan $ 165 31-Jan $ 1,650 25-Feb $ 1,320 Bal Bal. $ - $ 14,030 Insurance expense Rent expense Computer supplies expens Bal. $ ,135 Advertising expense 5-Feb $ 490 Bal. Bal. $ 490 $ Miscellaneous expense Bal. $ Mileage expense 27-Feb $ 31 Mar $ 224 Bal. S Reapirs expense - Computer 11- Mar $ 800 Bal $ 283 Bal. $ . Bal. $ 300

Business Solutions As of Mar 31, 2020 Unadjusted TB Debit Credit 66,349 As of Mar 31, 2020 Adjustments Debit Credit As of Mar 31, 2020 Adjusted TB Debit Credit 66,349 2,880 9,167 5,460 2,880 9,167 5,460 5,980 5,980 657 1,655 1,331 3,670 2,043 3,380 8,120 681 674 2,015 1,362 845 8,120 2,535 400 400 800 22,000 22,000 1,170 1,170 2,340 No. Account Title 101 Cash 106.1 Alex's Engineering Co 106.2 Wildcat Services 106.3 Easy Leasing 106.4 IFM CO 106.5 Liu Co 106.6 Gomez Co 106.7 Delta Co 106.8 KC. Inc. 106.9 Dream Inc. 119 Merchandise Inventory 126 Computer supplies 128 Prepaid Insurance 131 Prepaid rent 163 Office equipment 164 Accumulated Depreciation - Office equipment 167 Computer equipment 168 Accumulated Depreciation - Computer equipment 201 Accounts Payable 210 Wages Payable 236 Unearned computer services revenue 307 Common stock 318 Retained earnings 319 Dividends 403 Computer services revenue 413 Sales 414 Sales returns and allowances 415 Sales discounts 502 Cost of goods sold 612 Depreciation expense - Office equipment 613 Depreciation expense - Computer equipment 623 Wages expense 637 Insurance expense 640 Rent expense 652 Computer supplies expense 655 Advertising expense 676 Mileage expense 677 Miscellaneous expense 684 Reapirs expense - Computer 1,155 1,155 98,658 9,460 98,658 9,460 4,780 4,780 25,437 19,420 25,437 19,420 600 42 14,030 657 3,135 400 1,170 1,155 681 2,535 1,655 600 42 14,687 400 1,170 4,290 681 2,535 1,655 490 288 490 288 800 154,545 800 157,270 154,545 8 ,253 8,253 157,270

25,437 Business Solutions Income statement For three months ended March 31, 2020 Computer services revenue Sales Less: Sales returns and allowances Sales discounts Net Sales Total Revenues 19,420 (600) (42) 18,778 44,215 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 Reapirs expense - Computer Total Expenses Net Income 14,687 400 1,170 4,290 681 2,535 1,655 490 288 800 26,996 17,219 Business Solutions Statement of retained earnings For three months ended March 31, 2020 Retained earnings, Jan 1, 2020 Net Income Less Dividends Retained earnings, Mar 31, 2020 9,460 17,219 (4,780) 21,899

25,437 19,420 (600) (42) 18,778 44,215 14,687 29,528 Business Solutions Multi-step Income Statement For three months ended March 31, 2020 Computer services revenue Sales Less: Sales returns and allowances Sales discounts Net Sales Gross Sales Cost of goods sold Gross Profit Operating expenses Selling expenses Wages expense Mileage expense Advertising expense Total Selling expenses General & Administrative expenses Depreciation expense - Office equipment Depreciation expense - Computer equipment Insurance expense Rent expense Computer supplies expense Reapirs expense - Computer Total General & Administrative expenses Total Operating expenses Net Profit 4,290 288 490 5,068 400 1,170 681 2,535 1,655 800 7,241 12,309 17,219

Business Solutions Balance Sheet As of March 31, 2020 Assets Current Assets Cash Accounts Receivable Merchandise Inventory Computer supplies Prepaid Insurance Prepaid rent Total Current Assets 66,349 23,487 674 2,015 1,362 845 94,732 7,320 Plant Assets Office equipment Accumulated Depreciation - Office equipment Computer equipment Accumulated Depreciation - Computer equipment Total Plant Assets Total Assets 8,120 (800) 22,000 (2,340) 19,660 26,980 121,712 Liabilities & Stockholders Equity Current Liabilities Wages Payable 1,155 Stockholders Equity Common Stock Retained earnings Total Stockholders Equity Total Liabilities & Stockholders Equity 98,658 21,899 120,557 121,712