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	$	38,464
106	Accounts receivable		12,718
126	Computer supplies		2,645
128	Prepaid insurance		1,980
131	Prepaid rent		3,120
163	Office equipment		8,500
164	Accumulated depreciation—Office equipment				$	0
167	Computer equipment		21,600
168	Accumulated depreciation—Computer equipment					0
201	Accounts payable					0
210	Wages payable					0
236	Unearned computer services revenue					0
307	Common stock					64,000
318	Retained earnings					0
319	Dividends		6,000
403	Computer services revenue					36,834
612	Depreciation expense—Office equipment		0
613	Depreciation expense—Computer equipment		0
623	Wages expense		2,550
637	Insurance expense		0
640	Rent expense		0
652	Computer supplies expense		0
655	Advertising expense		1,638
676	Mileage expense		634
677	Miscellaneous expenses		240
684	Repairs expense—Computer		745
	Totals	$	100,834		$	100,834

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

Dec.	2		Paid $975 cash to Hillside Mall for Business Solutions’ share of mall advertising costs.
	3		Paid $460 cash for minor repairs to the company’s computer.
	4		Received $4,050 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 $7,000 on a proposed project has been accepted. Alex’s paid a $2,000 cash advance to Business Solutions.
	15		Purchased $1,400 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 $5,825 cash.
	22–26		Took the week off for the holidays.
	28		Received $3,100 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 $1,300 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 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 from Requirement 1 and adjusting entries from Requirement 2A. After completing Requirement 7, post the closing entries to the general ledger accounts.
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 retained earnings for the three months ended December 31, 2019.
6. Prepare a balance sheet as of December 31, 2019.
7. Record the necessary closing entries as of December 31, 2019 and then post the closing entries to the general ledger in Requirement 2B.
8. Prepare a post-closing trial balance as of December 31, 2019.
all req1 req2a req2b req3 req4 req5 req6 req7 req8

Answer 1

1.

Date	Account Titles	Debit	Credit
December
2	Advertising Expense	$975
	Cash		$975
3	Repair expense-computer	$460
	Cash		$460
4	Cash	$4,050
	Accounts Receivable		$4,050
10	Wages Expense	$720
	Cash [6 days × $120]		$720
14	Cash	$2,000
	Unearned computer service revenue		$2,000
15	Computer supplies	$1,400
	Accounts payable		$1,400
16	No entry
20	Cash	$5,825
	Computer service revenue		$5,825
22-26	No entry
28	Cash	$3,100
	Accounts Receivable		$3,100
29	Mileage expense [400 miles × $0.31]	$124
	Cash		$124
31	Dividends	$1,300
	Cash		$1,300

______________________________________________________________

2-a. Prepare adjusting entries to reflect a through f.

Date	Account Titles	Debit	Credit
Dec. 31	Adjusting Entry
a)	Computer supplies expense	$3,435
	Computer supplies [$2645 + $1400 - $610]		$3,435
b)	Insurance Expense	$495
	Prepaid Insurance [$1980/12] × 3		$495
c)	Wages Expense	$480
	Wages payable [4 days × $120]		$480
d)	Depreciation expense-computer equipment	$1,350
	Accumulated depreciation-computer equipment		$1,350
	[($21600 ÷ 4 years) × 3/12
e)	Depreciation expense-Office equipment	$425
	Accumulated depreciation-Office equipment		$425
	[($8500 ÷ 5 years) × 3/12]
f)	Rent Expense	$2,340
	Prepaid rent [$3120/4] × 3		$2,340

____________________________________________________________

Date Date Beg. Bal. Advertising Expense Debit Credit $1.638 2 $975 Balance $1,638 $2.613 Accounts receivable Debit Credit Balance Beg. Bal. $12.718 $12.718 4 $4,050 $8.668 28 $3,100 $5,568 Cash Date Debit Credit Balance Beg. Bal. $38,464 $38,464 $975 $37,489 3 $460 $37,029 4 $4,050 $41.079 10 $720 $40.359 14 $2,000 $42,359 20 $5,825 $48.184 28 $3.100 $51.284 29 $124 $51.160 31 $1,300 $49,860 Date Beg. Bal. Repair Expense-computer Debit Credit $745 31 $460 Balance $745 $1,205 Unearned Computer Service Revenue Date Debit Credit Balance 14 $2.000 $2.000 Date Beg. Bal Wages Expense Debit Credit $2,550 10 $720 $480 Balance $2,550 $3,270 Computer Supplies Date Debit Credit Balance Beg. Bal $2,645 $2,645 15 $1,400 $4,045 Adj. a $3,435 $610 Date Accounts payable Debit Credit Balance 15 $1,400 $1,400 Adj. c $3,750

Debit Date Debit Computer service revenue Date Debit Credit Balance Beg. Bal. $36,834 $36.834 20 $5,825 $42.659 Date Beg. Bal. Mileage Expense Credit $634 $124 Balance $634 $758 Dividends Credit $6,000 $1,300 Beg. Bal. Balance $6,000 $7,300 291 31 Insurance Expense Debit Credit $495 Date Adj. b Balance Balance $495 Date Beg. Bal. Adj. b Prepaid Insurance Debit Credit $1.980 $495 Balance $1,980 $1,485 Wages payable Debit Credit $480 Date Adj. c $480 Depreciation expense-computer equipment Date Debit Credit Balance Adj. d $1,350 $1,350 Rent Expense Debit Credit $2,340 Date Adj. f Prepaid Rent Debit Credit Balance $3.120 $3.120 $2,340 $780 Date Beg. Bal. Adj. f Balance $2,340 Depreciation expense-Office equipment Date Debit Credit Balance |Adj. e $425 $425 Accum. Deprn.-computer equipment Date Debit Credit Adj. d $1,350 $1,350 Balance Date Beg. Bal. Misc. Expense Debit Credit $240 Balance $240

Accum. Deprn.-office equipment Date Debit Credit Balance Adj. d $425 $425 Date Adj. a Computer supplies expense Debit Credit Balance $3,435 $3,435

____________________________________________________________________

Prepare Adjusted Trial Balance:

Adjusted Trial Balance
Account Title	Debit	Credit
Cash	49,860
Accounts receivable	5,568
Computer supplies	610
Prepaid insurance	1,485
Prepaid rent	780
Office equipment	8,500
Accumulated depreciation—Office equipment		$425
Computer equipment	21,600
Accumulated depreciation—Computer equipment		$1,350
Accounts payable		$1,400
Wages payable		$480
Unearned computer services revenue		$2,000
Common stock		64,000
Dividends	$7,300
Computer services revenue		42,659
Depreciation expense—Office equipment	$425
Depreciation expense—Computer equipment	$1,350
Wages expense	3,750
Insurance expense	$495
Rent expense	$2,340
Computer supplies expense	$3,435
Advertising expense	2,613
Mileage expense	$758
Miscellaneous expenses	$240
Repairs expense—Computer	$1,205
Totals	112,314	112,314

_________________________________________________________

Prepare Income statement:

42,659 Income Statement Revenue: Computer services revenue Less: Expenses Depreciation expense-Office equipment Depreciation expense—Computer equipment Wages expense Insurance expense Rent expense Computer supplies expense Advertising expense Mileage expense Miscellaneous expenses Repairs expense Computer 425 1,350 3,750 495 2,340 3,435 2.613 758 240 1,205 16,611 Net Income 26,048

_______________________________________________________________

Balance Sheet
Assets:
Cash		49,860
Accounts receivable		5,568
Computer supplies		610
Prepaid insurance		1,485
Prepaid rent		780
Office equipment	8,500
Accumulated depreciation—Office equipment	($425)	$8,075
Computer equipment	21,600
Accumulated depreciation—Computer equipment	($1,350)	$20,250
Total Assets		86,628
Liabilities:
Accounts payable		$1,400
Wages payable		$480
Unearned computer services revenue		$2,000
Stockholders' equity:
Common stock		$64,000
Retained Earnings		$18,748
Total Liabilities and SE		$86,628

___________________________________________________

Prepare closing entries as follows:

Credit Date Account Titles Dec. 31 Computer services revenue Income Summary Debit 42.659 42,659 $16,611 Dec. 31 Income Summary Depreciation expense-Office equipment Depreciation expense—Computer equipment Wages expense Insurance expense Rent expense Computer supplies expense Advertising expense Mileage expense Miscellaneous expenses Repairs expense—Computer $425 $1,350 $3,750 $495 $2,340 $3,435 $2.613 $758 $240 $1,205 $26,048 Dec. 31 Income Summary Retained Earnings [$42659 - $16611] $26,048 $7.300 Dec. 31 Retained Earnings Dividends $7.300

_____________________________________________________

Prepare post closing trial balance:

Credit 49860 5568 6101 1485 780 8500 Post closing Trial Balance Account Title Debit Cash Accounts receivable Computer supplies Prepaid insurance Prepaid rent Office equipment Accumulated depreciation—Office equipment Computer equipment Accumulated depreciation Computer equipment Accounts payable Wages payable Unearned computer services revenue Common stock Retained Earnings Totals 425 216000 1350 1400 480 2000 64000 18748 88403 88403

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