Question

Serial Problem Business Solutions LO P1, P2, P3

After the success of the company’s first two months, Santana Rey continues to operate Business Solutions. The November 30, 2017, unadjusted trial balance of Business Solutions (reflecting its transactions for October and November of 2017) follows.

No.	Account Title	Debit			Credit
101	Cash	$	38,364
106	Accounts receivable		13,218
126	Computer supplies		2,645
128	Prepaid insurance		2,040
131	Prepaid rent		3,140
163	Office equipment		8,000
164	Accumulated depreciation—Office equipment				$	0
167	Computer equipment		23,600
168	Accumulated depreciation—Computer equipment					0
201	Accounts payable					0
210	Wages payable					0
236	Unearned computer services revenue					0
301	S. Rey, Capital					72,000
302	S. Rey, Withdrawals		6,000
403	Computer services revenue					30,844
612	Depreciation expense—Office equipment		0
613	Depreciation expense—Computer equipment		0
623	Wages expense		2,550
637	Insurance expense		0
640	Rent expense		0
652	Computer supplies expense		0
655	Advertising expense		1,658
676	Mileage expense		694
677	Miscellaneous expenses		210
684	Repairs expense—Computer		725
	Totals	$	102,844		$	102,844

Business Solutions had the following transactions and events in December 2017.   

Dec.	2		Paid $935 cash to Hillside Mall for Business Solutions’ share of mall advertising costs.
	3		Paid $400 cash for minor repairs to the company’s computer.
	4		Received $4,250 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 $7,800 on a proposed project has been accepted. Alex’s paid a $2,000 cash advance to Business Solutions.
	15		Purchased $1,300 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 $6,375 cash.
	22–26		Took the week off for the holidays.
	28		Received $3,200 cash from Gomez Co. on its receivable.
	29		Reimbursed S. Rey for business automobile mileage (400 miles at $0.25 per mile).
	31		S. Rey withdrew $1,400 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 $640 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 has 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, 2017.
4. Prepare an income statement for the three months ended December 31, 2017.
5. Prepare a statement of owner’s equity for the three months ended December 31, 2017.
6. Prepare a balance sheet as of December 31, 2017.

Answer 1

1. Prepare journal entries to record each of the December transactions and events for Business Solutions.

Date	Account Titles	Debit	Credit
December
2	Advertising Expense	$935
	Cash		$935
3	Repair expense-computer	$400
	Cash		$400
4	Cash	$4,250
	Accounts Receivable		$4,250
10	Wages Expense	$630
	Cash [6 days × $105]		$630
14	Cash	$2,000
	Unearned computer service revenue		$2,000
15	Computer supplies	$1,300
	Accounts payable		$1,300
16	No entry
20	Cash	$6,375
	Computer service revenue		$6,375
22-26	No entry
28	Cash	$3,200
	Accounts Receivable		$3,200
29	Mileage expense [400 miles × $0.25]	$100
	Cash		$100
31	S. Ray, withdrawal	$1,400
	Cash		$1,400

_______________________________________________________________

2-a. Prepare adjusting entries to reflect a through f.

Date	Account Titles	Debit	Credit
Dec. 31	Adjusting Entry
a)	Computer supplies expense	$3,305
	Computer supplies [$2645 + $1300 - $640]		$3,305
b)	Insurance Expense	$510
	Prepaid Insurance [$2040/12] * 3		$510
c)	Wages Expense	$420
	Wages payable [4 days × $105]		$420
d)	Depreciation expense-computer equipment	$1,475
	Accumulated depreciation-computer equipment		$1,475
	[($23600 ÷ 4 years) × 3/12
e)	Depreciation expense-Office equipment	$400
	Accumulated depreciation-Office equipment		$400
	[($8000 ÷ 5 years) × 3/12]
f)	Rent Expense	$2,355
	Prepaid rent		$2,355

___________________________________________________________________

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, 2017.

___________________________________________________________

4. Prepare an income statement for the three months ended December 31, 2017.

________________________________________________________

5. Prepare a statement of owner’s equity for the three months ended December 31, 2017.

_______________________________________________________

6. Prepare a balance sheet as of December 31, 2017.

Please feel free to ask any query regarding the solution. Give your valuable rating. Thank You!

Debit Date Beg. Bal. Date Beg. Bal. Advertising Expense Credit $1,658 $935 Balance $1,658 $2,593 Accounts receivable Date Debit Credit Balance Beg. Bal. $13,218 $13,218 $4,250 $8.968 $3,200 $5,768 Cash Debit Credit $38,364 $935 $400 $4,250 $630 $2,000 $6,375 $3,200 $100 $1,400 Balance $38,364 $37.429 $37.029 $41.279 $40.649 $42,649 $49,024 $52.224 $52.124 $50.724 Repair Expense-computer Date Debit Credit Balance Beg. Bal $725 $725 $400 $1.125 Unearned Computer Service Revenue Date Debit Credit Balance $2,000 $2,000 14 Wages Expense Date Debit Credit Beg. Bal. $2,550 10 $630 Adj.c $420 Balance $2,550 $3,180 $3,600 Computer Supplies Date Debit Credit Beg. Bal. $2,645 15 $1,300 Adj. a $3,305 Balance $2.645 $3.945 $640 Accounts payable Debit Credit L $1,300 Balance $1,300 15

Date Beg. Bal. Computer service revenue Debit Credit Balance $30,844 $30,844 $6,375 $37,219 Mileage Expense Date Debit Credit Beg. Bal. $694 29 $100 Balance $694 $794 S. Ray, Withdrawal Date Debit Credit Beg. Bal. $6,000 31 $1,400 Balance $6,000 $7.400 20 Date Adj. b Insurance Expense Debit Credit $510 Balance $510 Prepaid Insurance Date Debit Credit Beg. Bal. $2,040 Adj. b $510 Balance $2,040 $1,530 Date Adj. c Wages payable Debit Credit $420 Balance $420 Depreciation expense-computer equipment Date Debit Credit Balance Adj. d $1,475 $1,475 Date Adj. f Rent Expense Debit Credit $2.355 Balance $2,355 Prepaid Rent Date Debit Credit Beg. Bal. $3.140 Adj. f $2,355 Balance $3.140 $785 Depreciation expense-Office equipment Date Debit Credit Balance Adj. e $400 $400 Accum. Deprn.-computer equipment Date Debit Credit Balance Adj. d $1,475 $1,475 Accumm. Deprn.-Office equipment Date Debit Credit Balance Adj. e $400 | Creditsa00 Balanse.co

Computer supplies expense Credit Date Adj. a Debit $3,305 Balance $3,305

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5400 Depreciation expense-Office equipment Depreciation expense-Computer equipment Wages expense Insurance expense Rent expense Computer supplies expense Advertising expense Mileage expense Miscellaneous expenses Repairs expense-Computer Totals $1,475 3,600 $510 $2,355 $3,305 2,593 $794 $210 $1,125 114,814 114,814

$400 Income Statement Revenue: Computer services revenue Less: Expenses Depreciation expense-Office equipment Depreciation expense-Computer equipment Wages expense Insurance expense Rent expense Computer supplies expense Advertising expense Mileage expense Miscellaneous expenses Repairs expense-Computer $1,475 3,600 $5101 $2,355 $3,305 2,5931 $794 $2101 $1,125 $16,367 Net Income $20,852

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Balance Sheet 50,724 5,768 640 Assets: Cash Accounts receivable Computer supplies Prepaid insurance Prepaid rent Office equipment Accumulated depreciation 8,000 Office equipment $7,600 (5400) 23,600 (51,475) $22,125 89.172 Computer equipment Accumulated depreciation—Computer equipment Total Assets Liabilities: Accounts payable Wages payable Unearned computer services revenue Stockholders' equity Owners' equity Total Liabilities and OE $1,300 $420 $2.000 $85,452 $89.172