Question

Serial Problem Business Solutions LO P1, P2, P3, P4, P5, P6

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	$	38,264
106	Accounts receivable		12,618
126	Computer supplies		2,545
128	Prepaid insurance		2,220
131	Prepaid rent		3,300
163	Office equipment		8,000
164	Accumulated depreciation—Office equipment				$	0
167	Computer equipment		20,000
168	Accumulated depreciation—Computer equipment					0
201	Accounts payable					0
210	Wages payable					0
236	Unearned computer services revenue					0
307	Common stock					73,000
318	Retained earnings					0
319	Dividends		5,600
403	Computer services revenue					25,659
612	Depreciation expense—Office equipment		0
613	Depreciation expense—Computer equipment		0
623	Wages expense		2,625
637	Insurance expense		0
640	Rent expense		0
652	Computer supplies expense		0
655	Advertising expense		1,728
676	Mileage expense		704
677	Miscellaneous expenses		250
684	Repairs expense—Computer		805
	Totals	$	98,659		$	98,659

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

Dec.	2		Paid $1,025 cash to Hillside Mall for Business Solutions’ share of mall advertising costs.
	3		Paid $500 cash for minor repairs to the company’s computer.
	4		Received $3,950 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 $125 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 $1,500 cash advance to Business Solutions.
	15		Purchased $1,100 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 $5,625 cash.
22–26			Took the week off for the holidays.
	28		Received $3,000 cash from Gomez Co. on its receivable.
	29		Reimbursed S. Rey for business automobile mileage (600 miles at $0.32 per mile).
	31		The company paid $1,500 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 $580 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 $125 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.

Answer 1

Dec	Journal Entries	Dr. ($)	Cr. ($)
2	advertising expenses	1025
	To cash		1025
3	repairs expenses – computer	500
	To cash		500
4	cash	3950
	To accounts receivable		3950
10	wage expenses	750
	To cash		750
14	cash	1500
	To unearned computer services revenue		1500
15	computer supplies	1100
	To accounts payable		1100
16	NO ENTRY
20	cash	5625
	To computer service revenue		5625
22-26	NO ENTRY
28	cash	3000
	To accounts receivable		3000
29	mileage expenses	192
	To cash		192
31	dividends	1500
	To cash		1500

adjusting journal entries

Ref.	Adjusting Journal Entries	Dr. ($)	Cr. ($)
a	computer supplies expenses	3065
	To computer supplies		3065
	(beginning balance	2545
	purchases	1100
	less ending balance	-580
	supplies expenses)	3065
b	insurance expenses	555
	To prepaid insurance		555
	(insurance for 12 months = 2220
	For 3 months = 2220*3/12)
c	wage expenses	500
	To wages payable		500
	(4 days * $125 = $500)
d	depreciation expenses – computer	1250
	To accumulated depreciation – computer		1250
e	depreciation expenses – office equipment	400
	To accumulated depreciation – office equipment		400
f	rent expenses	2475
	To prepaid rent		2475
	(rent for 4 months = 3300
	rent for 3 months = 3300*3/4)

Adjusted Trial Balance

Accounts	Dr. ($)	Cr. ($)
cash	48372
accounts receivable	5668
computer supplies	580
prepaid insurance	1665
prepaid rent	825
office equipment	8000
accumulated depreciation – office equipment		400
computer equipment	20000
accumulated depreciation – computer		1250
accounts payable		1100
wages payable		500
unearned computer service revenue		1500
common stock		73000
retained earnings
dividends	7100
computer service revenue		31284
depreciation expenses – computer	1250
depreciation expenses – office equipment	400
wage expenses	3875
insurance expenses	555
rent expenses	2475
computer supplies expenses	3065
advertising expenses	2753
mileage expenses	896
miscellaneous expenses	250
repairs expenses – computer	1305
total	109034	109034

cash
date	amount	date	amount
to balance b/d	38264	2	1025
4	3950	3	500
14	1500	10	750
20	5625	29	192
28	3000	31	1500
		by balance c/d	48372
total	52339	total	52339
accounts receivable
date	amount	date	amount
to balance b/d	12618	4	3950
		28	3000
		by balance c/d	5668
total	12618	total	12618
computer supplies
date	amount	date	amount
to balance b/d	2545	a	3065
15	1100	by balance c/d	580
total	3645	total	3645
prepaid insurance
date	amount	date	amount
to balance b/d	2220	b	555
		by balance c/d	1665
total	2220	total	2220
prepaid rent
date	amount	date	amount
to balance b/d	3300	f	2475
		by balance c/d	825
total	3300	total	3300
accounts payable
date	amount	date	amount
to balance c/d	1100	15	1100
total	1100	total	1100
wages payable
date	amount	date	amount
to balance c/d	500	c	500
total	500	total	500
unearned computer service revenue
date	amount	date	amount
to balance c/d	1500	14	1500
total	1500	total	1500
computer service revenue
date	amount	date	amount
to profit & loss	31284	to balance b/d	25659
		20	5625
total	31284	total	31284
wage expenses
date	amount	date	amount
to balance b/d	2625	by profit & loss	3875
10	750
c	500
total	3875	total	3875
insurance expenses
date	amount	date	amount
b	555	by profit & loss	555
total	555	total	555
rent expenses
date	amount	date	amount
f	2475	by profit & loss	2475
total	2475	total	2475
computer supplies expenses
date	amount	date	amount
a	3065	by profit & loss	3065
total	3065	total	3065
advertising expenses
date	amount	date	amount
by balance b/d	1728	by profit & loss	2753
2	1025
total	2753	total	2753
mileage expenses
date	amount	date	amount
by balance b/d	704	by profit & loss	896
29	192
total	896	total	896