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

$

38,764

     

106 Accounts receivable

12,618

     

126 Computer supplies

2,545

     

128 Prepaid insurance

   

131 Prepaid rent

1,980

3,220

     

163 Office equipment

8,700

     

164 Accumulated depreciation—Office equipment

$

0

     

167 Computer equipment

20,800

     

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

71,000

0

     

319 Dividends

6,500

     

403 Computer services revenue

29,774

     

612 Depreciation expense—Office equipment

0

     

613 Depreciation expense—Computer equipment

0

     

623 Wages expense

2,300

     

637 Insurance expense

0

     

640 Rent expense

0

     

652 Computer supplies expense

   

655 Advertising expense

0

1,688

     

676 Mileage expense

674

     

677 Miscellaneous expenses

210

     

684 Repairs expense—Computer

775

                  

T otals

$

100,774

$

100,774

                   

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

Dec. 2 Paid $945 cash to Hillside Mall for Business Solutions’ share of mall advertising costs.

3 Paid $410 cash for minor repairs to the company’s computer.

4 Received $4,550 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 $105 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 $1,700 cash advance to Business Solutions.

15 Purchased $1,700 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 $5,725 cash.

22-26 Took the week off for the holidays.

28 Received $3,900 cash from Gomez Co. on its receivable.

29 Reimbursed S. Rey for business automobile mileage (600 miles at $0.30 per mile).

31 The company paid $1,200 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 $620 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 $105 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, 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.

Answer 1