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 TitleDebitCredit

101Cash$39,164   

106Accounts receivable 12,618   

126Computer supplies 2,545   

128Prepaid insurance 2,040   

131Prepaid rent 2,920   

163Office equipment 8,800   

164Accumulated depreciation—Office equipment   $0

167Computer equipment 21,200   

168Accumulated depreciation—Computer equipment    0

201Accounts payable    0

210Wages payable    0

236Unearned computer services revenue    0

307Common stock    71,000

318Retained earnings    0

319Dividends 6,400   

403Computer services revenue    30,139

612Depreciation expense—Office equipment 0   

613Depreciation expense—Computer equipment 0   

623Wages expense 2,125   

637Insurance expense 0   

640Rent expense 0   

652Computer supplies expense 0   

655Advertising expense 1,728   

676Mileage expense 704   

677Miscellaneous expenses 170   

684Repairs expense—Computer 725   

Totals$101,139 $101,139

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

Dec.2 Paid $955 cash to Hillside Mall for Business Solutions’ share of mall advertising costs.

3 Paid $430 cash for minor repairs to the company’s computer.

4 Received $4,950 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 $120 per day.

14 Notified by Alex’s Engineering Co. that Business Solutions’ bid of $7,100 on a proposed project has been accepted. Alex’s paid a $2,000 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 $6,575 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 (400 miles at $0.27 per mile).

31 The company paid $1,300 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.

The December 31 inventory count of computer supplies shows $630 still available.

Three months have expired since the 12-month insurance premium was paid in advance.

As of December 31, Lyn Addie has not been paid for four days of work at $120 per day.

The computer system, acquired on October 1, is expected to have a four-year life with no salvage value.

The office equipment, acquired on October 1, is expected to have a five-year life with no salvage value.

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