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	$	38,264
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
301	S. Rey, Capital					73,000
302	S. Rey, Withdrawals		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		S. Rey withdrew $1,500 cash from the company for personal use.

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, 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 owner’s equity for the three months ended December 31, 2019.
6. Prepare a balance sheet as of December 31, 2019.

Answer 1

Date	General Journal	Debit	Credit
2-Dec	Advertising expense	$ 1,025
	Cash		$ 1,025
3-Dec	Repairs expense—Computer	$     500
	Cash		$     500
4-Dec	Cash	$ 3,950
	Accounts receivable		$ 3,950
10-Dec	Wages expense	$     750
	Cash		$     750
14-Dec	Cash	$ 1,500
	Unearned computer services revenue		$ 1,500
15-Dec	Computer supplies	$ 1,100
	Accounts payable		$ 1,100
16-Dec	No journal entry required
20-Dec	Cash	$ 5,625
	Computer services revenue		$ 5,625
28-Dec	Cash	$ 3,000
	Accounts receivable		$ 3,000
29-Dec	Mileage expense	$     192
	Cash		$     192
31-Dec	Dividends	$ 1,500
	Cash		$ 1,500

2
Transaction	General Journal	Debit	Credit
a.	Computer supplies expense	$ 3,065
	Computer supplies		$ 3,065
b.	Insurance expense	$     555
	Prepaid insurance		$     555
c.	Wages expense	$     500
	Wages payable		$     500
d.	Depreciation expense—Computer equipment	$ 1,250
	Accumulated depreciation—Computer equipment		$ 1,250
e.	Depreciation expense—Office equipment	$     400
	Accumulated depreciation—Office equipment		$     400
f.	Rent expense	$ 2,475
	Prepaid rent		$ 2,475

Date	General Journal	Debit	Credit
31-Dec	Computer services revenue	$31,284
	Income summary		$31,284
31-Dec	Income summary	$16,824
	Depreciation expense—Office equipment		$     400
	Depreciation expense—Computer equipment		$ 1,250
	Wages expense		$ 3,875
	Insurance expense		$     555
	Rent expense		$ 2,475
	Computer supplies expense		$ 3,065
	Advertising expense		$ 2,753
	Mileage expense		$     896
	Miscellaneous expenses		$     250
	Repairs expense—Computer		$ 1,305
31-Dec	Income summary	$14,460
	Retained earnings		$14,460
31-Dec	Retained earnings	$ 7,100
	Dividends		$ 7,100

BUSINESS SOLUTIONS
Adjusted Trial Balance
31-Dec-19
Account Title	Debit	Credit
Cash	$       48,372
Accounts receivable	$         5,668
Computer supplies	$            580
Prepaid insurance	$         1,665
Prepaid rent	$            825
Office equipment	$         8,000
Accumulated depreciation—Office equipment		$            400
Computer equipment	$       20,000
Accumulated depreciation—Computer equipment		$         1,250
Accounts payable		$         1,100
Wages payable		$            500
Unearned computer services revenue		$         1,500
Common stock		$       73,000
Retained earnings		$               -
Dividends	$         7,100
Computer services revenue		$       31,284
Depreciation expense—Office equipment	$            400
Depreciation expense—Computer equipment	$         1,250
Wages expense	$         3,875
Insurance expense	$            555
Rent expense	$         2,475
Computer supplies expense	$         3,065
Advertising expense	$         2,753
Mileage expense	$            896
Miscellaneous expenses	$            250
Repairs expense—Computer	$         1,305
Totals	$     109,034	$     109,034

BUSINESS SOLUTIONS
Income Statement
For Three Months Ended December 31, 2019
Revenue
Computer services revenue		$       31,284
Expenses
Depreciation expense—Office equipment	$            400
Depreciation expense—Computer equipment	$         1,250
Wages expense	$         3,875
Insurance expense	$            555
Rent expense	$         2,475
Computer supplies expense	$         3,065
Advertising expense	$         2,753
Mileage expense	$            896
Miscellaneous expenses	$            250
Repairs expense—Computer	$         1,305
Total expenses		$       16,824
Net income		$       14,460

BUSINESS SOLUTIONS
Statement of Retained Earnings
For Three Months Ended December 31, 2019
Retained earnings, October 1, 2017	$               -
Add: Net income	$       14,460
	$       14,460
Less: Dividends	$         7,100
Retained earnings, December 31, 2015	$         7,360

BUSINESS SOLUTIONS
Balance Sheet
31-Dec-19
Assets
Cash		$       48,372
Accounts receivable		$         5,668
Computer supplies		$            580
Prepaid insurance		$         1,665
Prepaid rent		$            825
Office equipment	$         8,000
Accumulated depreciation—Office equipment	$           (400)	$         7,600
Computer equipment	$       20,000
Accumulated depreciation—Computer equipment	$        (1,250)	$       18,750
Total Assets		$       83,460
Liabilities
Accounts payable		$         1,100
Wages payable		$            500
Unearned computer services revenue		$         1,500
Total Liabilities		$         3,100
Equity
Common stock		$       73,000
Retained earnings		$         7,360
Total equity		$       80,360
Total Liabilities and Equity		$       83,460