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