Question

Accounting 2140 – Comprehensive Problem On October 1, 2019, Santana Rey launched a computer services company called Business Solutions, which provides consulting services, computer system installations, and custom program development. Rey adopts the calendar year for reporting purposes and expects to prepare the company’s first set of financial statements on December 31, 2019. 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 $ 38,364 106 Accounts receivable 12,718 126 Computer supplies 2,645 128 Prepaid insurance 131 Prepaid rent 1,860 3,080 163 Office equipment 8,900 164 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 318 Retained earnings 67,000 0 319 Dividends 6,300 403 Computer services revenue 33,914 612 Depreciation expense—Office equipment 0 613 Depreciation expense—Computer equipment 0 623 Wages expense 2,150 637 Insurance expense 0 640 Rent expense 0 652 Computer supplies expense 655 Advertising expense 0 1,668 676 Mileage expense 654 677 Miscellaneous expenses 230 684 Repairs expense—Computer 745 T otals $ 100,914 $ 100,914 Business Solutions had the following transactions and events in December 2019. Dec. 2 Paid $930 cash to Hillside Mall for Business Solutions’ share of mall advertising costs. 3 Paid $450 cash for minor repairs to the company’s computer. 4 Received $4,350 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 $115 per day. 14 Notified by Alex’s Engineering Co. that Business Solutions’ bid of $7,500 on a proposed project has been accepted. Alex’s paid a $1,600 cash advance to Business Solutions. 15 Purchased $1,900 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 $6,225 cash. 22-26 Took the week off for the holidays. 28 Received $3,400 cash from Gomez Co. on its receivable. 29 Reimbursed S. Rey for business automobile mileage (500 miles at $0.30 per mile). 31 The company paid $1,100 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. a. The December 31 inventory count of computer supplies shows $590 still available. b. Three months have expired since the 12-month insurance premium was paid in advance. c. As of December 31, Lyn Addie has not been paid for four days of work at $115 per day. d. The computer system, acquired on October 1, is expected to have a four-year life with no salvage value. e. The office equipment, acquired on October 1, is expected to have a five-year life with no salvage value. f. 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 retained earnings for the three months ended December 31, 2019. 6. Prepare a balance sheet as of December 31, 2019. 7. Record and post the necessary closing entries as of December 31, 2019. 8. Prepare a post-closing trial balance as of December 31, 2019. Requirement 1 – General Journal Entries: No Date General Journal Debit Credit Requirement 2-a – Adjusting Entries: No Transaction General Journal Debit Credit Requirement 2-b and 7 – Post Transactions to General Ledger 101: Cash Date Debit Credit Balance 106: Accounts Receivable Date Debit Credit Balance 126: Computer Supplies Date Debit Credit Balance 131: Prepaid Rent Date Debit Credit Balance 164: Accumulated Depreciation— Office Equipment Date Debit Credit Balance 128: Prepaid Insurance Date Debit Credit Balance 163: Office Equipment Date Debit Credit Balance 167: Computer Equipment Date Debit Credit Balance 168: Accumulated Depreciation— Computer Equipment 201: Accounts Payable Date Debit Credit Balance 236: Unearned Computer Services Revenue Date Debit Credit Balance 318: Retained Earnings Date Debit Credit Balance 403: Computer Services Revenue Date Debit Credit Balance Date Date Date Date Debit Credit Balance 210: Wages Payable Debit Credit Balance 307: Common Stock Debit Credit Balance 319: Dividends Debit Credit Balance 612: Depreciation Expense—Office Equipment 613: Depreciation Expense—Computer Equipment Date Debit Credit Balance 637: Insurance Expense Date Debit Credit Balance Date Debit Credit Balance 623: Wages Expense Debit Credit Balance Date Date 640: Rent Expense Debit Credit Balance 652: Computer Supplies Expense Date Debit Credit Balance 676: Mileage Expense Date Debit Credit Balance 655: Advertising Expense Date Debit Credit Balance 677: Miscellaneous Expense 684: Repairs Expense—Computer Date Debit Credit Balance Date Debit Credit Balance 901: Income Summary Balance Date Debit Credit  Req 2A Requirement 3 – Adjusted Trial Balance BUSINESS SOLUTIONS Adjusted Trial Balance December 31, 2019 Account Title Debit Credit T otals Requirement 4 – Income Statement BUSINESS SOLUTIONS Income Statement For Three Months Ended December 31, 2019 Requirement 5 – Statement of Retained Earnings BUSINESS SOLUTIONS Statement of Retained Earnings For Three Months Ended December 31, 2019 Requirement 6 – Balance Sheet BUSINESS SOLUTIONS Balance Sheet December 31, 2019 Requirement 7 – Closing Entries: No Date General Journal Debit Credit Requirement 8 – Post Closing Trial Balance BUSINESS SOLUTIONS Post-Closing Trial Balance December 31, 2019 Debit Credit

Answer 1

Business Solutions Req 1 Journal entries Date Account 2-Dec Advertising expense Credit Calculation Debit $ 930 Cash $ 930 $ 450 3-Dec Repairs expense-Computer Cash $ 450 $ 4,350 4-Dec Cash Accounts Receivable $ 4,350 $ 690 =6*115 10-Dec Wages expense Cash $ 690 $ 1,600 14-Dec Cash Unearned Computer Services Revenue $ 1,600 $ 1,900 15-Dec Computer Supplies Accounts Payable $ 1,900 16-Dec No entry $ 6,225 20-Dec Cash Computer Services Revenue $ 6,225 Dec 22-26 No entry $ 3,400 28-Dec Cash Accounts Receivable $ 3,400 $ 150 =500*0.30 29-Dec Mileage expense Cash $ 150 $ 1,100 31-Dec Dividends Cash $ 1,100

Req 2-a Adjusting entries 31-Dec Computer supplies expense Computer Supplies $ 3,955 =2,645+1,900-590 $ 3,955 $ 465 =1,860/12*3 31-Dec Insurance expense Prepaid Insurance $ 465 $ 460 -4*115 31-Dec Wages expense Wages Payable $ 460 $ 1,350 =21,600/4 yrs *3/12 31-Dec Depreciation expense-Computer Equipment Accumulated Depreciation-Computer Equipment $ 1,350 $ 445 =8,900/5 yrs *3/12 31-Dec Depreciation expense-Office Equipment Accumulated Depreciation Office Equipment $ 445 $ 2,310 =3,080/4*3 31-Dec Rent expense Prepaid Rent $ 2,310

Business Solutions Req 2-b T Accounts Date Debit Credit Balance Date Debit Credit Balance Date Debit Credit Balance Date Debit Credit Balance Cash Accounts Receivable Computer Supplies Prepaid Insurance Op bal $ 38,364 $38,364 Op bal $12,718 $ 12,718 Op bal $ 2,645 $ 2,645 Op bal $ 1,860 $ 1,860 2-Dec $ 930 $ 37,434 4-Dec $ 4,350 $ 8,368 15-Dec $ 1,900 $ 4,545 31-Dec $ 465 $ 1,395 3-Dec $ 450 $ 36,984 28-Dec $ 3,400 $ 4,968 31-Dec $ 3,955 $ 590 4-Dec $ 4,350 $ 41,334 10-Dec $ 690 $ 40,644 14-Dec $ 1,600 $ 42,244 20-Dec $ 6,225 $ 48,469 28-Dec $ 3,400 $ 51,869 29-Dec $ 150 $ 51,719 31-Dec $ 1,100 $50,619 Office Equip Accum. Depr. - Office Equip Computer Equipment Accum. Depr. - Computer Equip Op bal $ 8,900 $ 8,900 31-Dec $ 445 $ 445 Op bal $21,600 $ 21,600 31-Dec $ 1,350 $ 1,350 Prepaid Rent Accounts Payable Wages Payable Unearned Computer Services Revenue Op bal $ 3,080 $ 3,080 15-Dec $ 1,900 $ 1,900 31-Dec $ 460 $ 460 14-Dec $ 1,600 $ 1,600 31-Dec $ 2,310 $ 770 Common Stock Dividends Income Summary Retained Earnings Op bal $ 67,000 $ 67,000 Op bal $ 6,300 $ 6,300 31-Dec $ 40,139 $ 40,139 Op bal $ - $ . 31-Dec $ 1,100 $ 7,400 31-Dec $ 16,652 $ 23,487 31-Dec $ 23,487 $ 23,487 31-Dec $ 7,400 $ - 31-Dec $ 23,487 31-Dec $ 7,400 $ 16,087 Computer Services Revenue Depreciation expense-Office Equipment Depreciation expense-Computer Equip Wages expense Op bal $ 33,914 $ 33,914 31-Dec $ 445 $ 445 31-Dec $ 1,350 $ 1,350 Op bal $ 2,150 $ 2,150 20-Dec $ 6,225 $ 40,139 31-Dec $ 445 $ - 31-Dec $ 1,350 $ - 10-Dec $ 690 $ 2,840 31-Dec $ 40,139 $ - 31-Dec $ 460 $ 3,300 31-Dec $ 3,300 $ - Insurance expense Rent expense Computer supplies expense Advertising expense 31-Dec $ 465 $ 465 31-Dec $ 2,310 $ 2,310 31-Dec $ 3,955 $ 3,955 Op bal $ 1,668 $ 1,668 31-Dec $ 465 $ - 31-Dec $ 2,310 $ - 31-Dec $ 3,955 $ - 2-Dec $ 930 $ 2,598 31-Dec $ 2,598 $ - Mileage expense Miscellaneous expense Repairs expense-Computer Op bal $ 654 $ 654 Op bal $ 230 $ 230 Op bal $ 745 $ 745 29-Dec $ 150 $ 804 31-Dec $ 230 $ . 3-Dec $ 450 $ 1,195 31-Dec $ 804 $ . 31-Dec $ 1,195 $ -

Reg 3 Business Solutions Account Names 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 Dividends Computer Services Revenue 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 Totals Adjusted TB Debit Credit 50,619 4,968 590 1,395 770 8,900 445 21,600 1,350 1,900 460 1,600 67,000 7,400 40,139 445 1,350 3,300 465 2,310 3,955 2,598 804 230 1,195 112,894 112,894

40,139 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 445 1,350 3,300 465 2,310 3,955 2,598 804 230 1,195 16,652 23,487 Req 5 Statement of Retained Earnings For three months ended Dec 31, 2019 Retained Earnings, Oct 1, 2019 Net Income Subtotal Less Dividends Retained Earnings, Dec 31, 2019 23,487 23,487 (7,400) 16,087

Req6 Business Solutions Balance Sheet As of Dec 31, 2019 Assets Current Assets Cash Accounts Receivable Computer Supplies Prepaid Insurance Prepaid Rent Total Current Assets 50,619 4,968 590 1,395 770 58,342 Fixed Assets Office Equipment Accumulated Depreciation Office Equipment Computer Equipment Accumulated Depreciation-Computer Equipment Total Fixed Assets Total Assets 8,900 (445) 8,455 21,600 (1,350) 20,250 28,705 87,047 Liabilities & Equity Liabilities Accounts Payable Wages Payable Unearned Computer Services Revenue Total Liabilities 1,900 460 1,600 3,960 Equity Common Stock Retained Earnings Total Equity Total Liabilities & Equity 67,000 16,087 83,087 87,047

Req7 Closing entries 31-Dec Computer Services Revenue Income Summary $ 40,139 $ 40,139 $ 16,652 31-Dec Income Summary 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 $ $ $ $ $ $ $ $ $ $ 445 1,350 3,300 465 2,310 3,955 2,598 804 230 1,195 $ 23,487 31-Dec Income Summary Retained Earnings $ 23,487 $ 7,400 31-Dec Retained Earnings Dividends $ 7,400

Req8 Post Closing TB Debit Credit 50,619 4,968 590 1,395 770 8,900 Business Solutions Account Names 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 445 21,600 1,350 1,900 460 1,600 67,000 16,087 88,842 88,842