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 $ 48,472

106.1 Alex’s Engineering Co. 0

106.2 Wildcat Services 0

106.3 Easy Leasing 0

106.4 IFM Co. 3,040

106.5 Liu Corp. 0

106.6 Gomez Co. 2,818

106.7 Delta Co. 0

106.8 KC, Inc. 0

106.9 Dream, Inc. 0

119 Merchandise inventory 0

126 Computer supplies 730

128 Prepaid insurance 1,881

131 Prepaid rent 895

163 Office equipment 8,200

164 Accumulated depreciation—Office equipment $ 290

167 Computer equipment 20,900

168 Accumulated depreciation—Computer equipment 1,200

201 Accounts payable 1,280

210 Wages payable 820

236 Unearned computer services revenue 1,500

301 S. Rey, Capital 81,846

302 S. Rey, Withdrawals 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 $205 per day. Four of the five days relate to wages payable that were accrued in the prior year.

5 Santana Rey invested an additional $24,900 cash in the company.

7 The company purchased $7,100 of merchandise from Kansas Corp. with terms of 1/10, n/30, FOB shipping point, invoice dated January 7.

9 The company received $2,818 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 $5,360, which is the total price of $6,860 less the advance payment of $1,500. The company debited Unearned Computer Services Revenue for $1,500.

13 The company sold merchandise with a retail value of $4,300 and a cost of $3,490 to Liu Corp., invoice dated January 13.

15 The company paid $610 cash for freight charges on the merchandise purchased on January 7.

16 The company received $4,100 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 $400 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 $9,900 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 $4,450 cost for $6,000 on credit to KC, Inc., invoice dated January 26.

31 The company paid cash to Lyn Addie for 10 days’ work at $205 per day.

Feb. 1 The company paid $2,685 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 $450 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 Santana Rey withdrew $4,780 cash from the company for personal use.

23 The company sold merchandise with a $2,620 cost for $3,280 on credit to Delta Co., invoice dated February 23.

26 The company paid cash to Lyn Addie for eight days’ work at $205 per day.

27 The company reimbursed Santana Rey $96 for business automobile mileage. The company recorded the reimbursement as "Mileage Expense."

Mar. 8 The company purchased $2,770 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 $950 cash for minor repairs to the company’s computer.

16 The company received $5,430 cash from Dream, Inc., for computing services provided.

19 The company paid the full amount due of $4,050 to Harris Office Products, consisting of amounts created on December 15 (of $1,280) and March 8.

24 The company billed Easy Leasing for $9,067 of computing services provided.

25 The company sold merchandise with a $2,092 cost for $2,910 on credit to Wildcat Services, invoice dated March 25.

30 The company sold merchandise with a $1,078 cost for $2,370 on credit to IFM Company, invoice dated March 30.

31 The company reimbursed Santana Rey $224 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:

The March 31 amount of computer supplies still available totals $2,065.

Prepaid Insurance coverage of $627 expired during this 3-month period.

Lyn Addie has not been paid for seven days of work at the rate of $205 per day.

Prepaid rent of $2,685 expired during this 3-month period.

Depreciation on the computer equipment for January 1 through March 31 is $1,200.

Depreciation on the office equipment for January 1 through March 31 is $290.

The March 31 amount of merchandise inventory still available totals $534.

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. (Record the transactions in the order presented. Do not skip rows.)

Answer 1

1	Date	General journal					Debit	Credit
	Jan 4.	Wages payable				(4*205)	820
		Wages expense					205
		Cash				(5*205)		1025
		(Wages paid)
	Jan 5.	Cash					24900
		S.Rey,capital						24900
		(Invested additional capital)
	Jan 7.	Merchandise inventory					7100
		Accounts payable						7100
		(Purchased merchandise)
	Jan 9.	Cash					2818
		Gomez Co.						2818
		(Received cash from customer)
	Jan 11.	Alex's engineering Co.					5360
		Unearned computer service revenue					1500
		Computer service revenue						6860
		(Computer services billed)
	Jan 13.	Liu Corp.					4300
		Sales						4300
		(Sales on account)
		Cost of goods sold					3490
		Merchandise inventory						3490
		(Cost of goods sold recorded)
	Jan 15.	Merchandise inventory					610
		Cash						610
		(Freight charges paid)
		(Under FOB shipping point,Freight is the responsibility
		of buyer)
	Jan 16.	Cash					4100
		Computer service revenue						4100
		(Received cash for services provided)
	Jan 17.	Accounts payable					7100
		Merchandise inventory				(7100*1%)		71
		Cash				(7100-71)		7029
		(Cash paid to supplier net of discount of 1%)
	Jan 20.	Sales returns and allowances					400
		Liu Corp.						400
		(Price reduction given to the customer)
	Jan 22.	Cash				(3900-39)	3861
		Sales discounts				(3900*1%)	39
		Liu Corp.				(4300-400)		3900
		(Received cash from customer)
	Jan 24.	Accounts payable					496
		Merchandise inventory						496
		(Defective merchandise returned to supplier)
	Jan 26.	Merchandise inventory					9900
		Accounts payable						9900
		(Purchased merchandise)