In: Accounting
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 | $ | 38,764 | |||
106 | Accounts receivable | 13,418 | ||||
126 | Computer supplies | 2,545 | ||||
128 | Prepaid insurance | 2,040 | ||||
131 | Prepaid rent | 3,140 | ||||
163 | Office equipment | 8,000 | ||||
164 | Accumulated depreciation—Office equipment | $ | 0 | |||
167 | Computer equipment | 21,600 | ||||
168 | Accumulated depreciation—Computer equipment | 0 | ||||
201 | Accounts payable | 0 | ||||
210 | Wages payable | 0 | ||||
236 | Unearned computer services revenue | 0 | ||||
307 | Common stock | 71,000 | ||||
318 | Retained earnings | 0 | ||||
319 | Dividends | 5,900 | ||||
403 | Computer services revenue | 29,989 | ||||
612 | Depreciation expense—Office equipment | 0 | ||||
613 | Depreciation expense—Computer equipment | 0 | ||||
623 | Wages expense | 2,275 | ||||
637 | Insurance expense | 0 | ||||
640 | Rent expense | 0 | ||||
652 | Computer supplies expense | 0 | ||||
655 | Advertising expense | 1,718 | ||||
676 | Mileage expense | 654 | ||||
677 | Miscellaneous expenses | 230 | ||||
684 | Repairs expense—Computer | 705 | ||||
Totals | $ | 100,989 | $ | 100,989 | ||
Business Solutions had the following transactions and events in December 2017.
Dec. | 2 | Paid $980 cash to Hillside Mall for Business Solutions’ share of mall advertising costs. | |
3 | Paid $480 cash for minor repairs to the company’s computer. | ||
4 | Received $4,750 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 $110 per day. | ||
14 | Notified by Alex’s Engineering Co. that Business Solutions’ bid of $7,900 on a proposed project has been accepted. Alex’s paid a $1,900 cash advance to Business Solutions. | ||
15 | Purchased $1,500 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 $5,975 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 (500 miles at $0.29 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:
The December 31 inventory count of computer supplies shows $590 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 $110 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 has expired.
Required:
5. Prepare a statement of retained earnings for
the three months ended December 31, 2017.
6. Prepare a balance sheet as of December 31,
2017.
7. Record and post the necessary closing entries
as of December 31, 2017.
8. Prepare a post-closing trial balance as of
December 31, 2017.
Solution
Business Solutions
Post Closing Trial Balance:
Business Solutions |
||
Post-Closing Trial Balance |
||
as on December 31, 2017 |
||
Account Titles |
Debit |
Credit |
Cash |
$51,824 |
|
Accounts Receivable |
$4,768 |
|
Computer Supplies |
$590 |
|
Prepaid Insurance |
$1,530 |
|
Prepaid Rent |
$785 |
|
Office Equipment |
$8,000 |
|
Accumulated Depreciation - Office Equipment |
$400 |
|
Computer Equipment |
$21,600 |
|
Accumulated Depreciation - Computer Equipment |
$1,350 |
|
Accounts Payable |
$1,500 |
|
Wages Payable |
$440 |
|
Unearned Computer Service Revenue |
$1,900 |
|
Common Stock |
$71,000 |
|
Retained Earnings |
$0 |
|
Dividends |
$7,100 |
|
Computer Service Revenue |
$35,964 |
|
Depreciation Expense - Office Equipment |
$400 |
|
Depreciation Expense - Computer Equipment |
$1,350 |
|
Wages Expense |
$3,375 |
|
Insurance Expense |
$510 |
|
Rent Expense |
$2,355 |
|
Computer Supplies Expense |
$3,455 |
|
Advertising Expense |
$2,698 |
|
Mileage Expense |
$799 |
|
Miscellaneous Expense |
$230 |
|
Repairs Expense - Computer |
$1,185 |
|
Totals |
$112,554 |
$112,554 |
Statement of Retained Earnings:
Business Solutions |
||
Statement of Retained Earnings |
||
for the three months ended December 31, 2017 |
||
Beginning Balance |
0 |
|
Add: Net Income |
$19,607 |
|
Less: Dividends |
$7,100 |
|
Ending balance |
$12,507 |
Balance Sheet:
Business Solutions |
|||
Balance Sheet as of December 31, 2017 |
|||
Assets |
Amount |
Liabilities |
Amount |
Cash |
$51,824 |
Accounts Payable |
$1,500 |
Accounts Receivable |
$4,768 |
Wages Payable |
$440 |
Computer Supplies |
$590 |
Unearned Computer Service Revenue |
$1,900 |
Prepaid Insurance |
$1,530 |
Common Stock |
$71,000 |
Prepaid Rent |
$785 |
Retained Earnings |
$12,507 |
Office Equipment |
$8,000 |
||
Less: Accumulated Depreciation - Office Equipment |
($400) |
||
Computer Equipment |
$21,600 |
||
Less: Accumulated Depreciation - Computer Equipment |
($1,350) |
||
Totals |
$87,347 |
$87,347 |
Closing Entries:
Closing Entries: |
||||
Date |
Account Titles and Explanation |
Ref. No. |
Debit |
Credit |
31-Dec-17 |
Service Revenue |
$35,964 |
||
Income Summary |
$35,964 |
|||
(To close service revenue account to income summary) |
||||
31-Dec-17 |
Income Summary |
$16,357 |
||
Depreciation Expense - Office Equipment |
$400 |
|||
Depreciation Expense - Computer Equipment |
$1,350 |
|||
Wages Expense |
$3,375 |
|||
Insurance Expense |
$510 |
|||
Rent Expense |
$2,355 |
|||
Computer Supplies Expense |
$3,455 |
|||
Advertising Expense |
$2,698 |
|||
Mileage Expense |
$799 |
|||
Miscellaneous Expense |
$230 |
|||
Repairs Expense - Computer |
$1,185 |
|||
(To close all expenses accounts to income summary) |
||||
31-Dec-17 |
Income Summary |
$19,607 |
||
Retained Earnings |
$19,607 |
|||
(To transfer net income to retained earnings account) |
||||
31-Dec-17 |
Retained Earnings |
$7,100 |
||
Dividends |
$7,100 |
|||
(To transfer dividends accounts to retained earnings) |
||||
Basic Computations –
Cash |
|||||
Debit |
Credit |
||||
Date |
Description |
Amount |
Date |
Description |
Amount |
1-Dec-17 |
Beg. Balance |
$38,764 |
|||
4-Dec-17 |
Accounts Receivable |
$4,750 |
2-Dec |
Advertising expenses |
$980 |
14-Dec-17 |
Unearned Revenue |
$1,900 |
3-Dec-17 |
Repairs Expense - Computer |
480 |
20-Dec-17 |
Service Revenue |
$5,975 |
10-Dec-17 |
Salaries expense |
$660 |
28-Dec-17 |
Accounts Receivable |
$3,900 |
29-Dec-17 |
Mileage Expense |
$145 |
31-Dec-17 |
Dividends |
$1,200 |
|||
31-Dec-17 |
Ending Balance |
$51,824 |
|||
$55,289 |
$55,289 |
Date |
Account Titles and explanation |
Debit |
Credit |
31-Dec-17 |
Computer Supplies Expense |
$3,455 |
|
Computer Supplies |
$3,455 |
||
(To record cost of supplies used, 2,545 + 1,500 - 590 = $3,455) |
|||
31-Dec-17 |
Insurance Expense |
$510 |
|
Prepaid Insurance |
$510 |
||
(To record expired portion of prepaid insurance, 2,040 x 3/12 = 510) |
|||
31-Dec-17 |
Wages Expense |
$440 |
|
Wages Payable |
$440 |
||
(To record unpaid salaries, 4 days x $110 per day = $440) |
|||
31-Dec-17 |
Depreciation Expense - Computer |
$1,350 |
|
Accumulated Depreciation - Computer |
$1,350 |
||
(To record depreciation expense on Computer, 21,600 x 1/4 x 3/12 = $1,350) |
|||
31-Dec-17 |
Depreciation Expense - Office Equipment |
400 |
|
Accumulated Depreciation - Office Equipment |
$400 |
||
(To record depreciation expense on Office Equipment, 8,000 x 1/5 x 3/12 = $400) |
|||
31-Dec-17 |
Rent Expense |
$2,355 |
|
Prepaid Rent |
$2,355 |
||
(To record expired portion of prepaid rent, 3,140 x 3/4 = 2,355) |
1 |
Depreciation Expense - Office Equipment |
$400 |
2 |
Depreciation Expense - Computer Equipment |
$1,350 |
3 |
Wages Expense- |
|
Beg. Balance |
$2,275 |
|
Add: wages paid |
$660 |
|
Add: unpaid wages |
$440 |
|
Ending Balance |
$3,375 |
|
4 |
Insurance Expense |
$510 |
5 |
Rent Expense |
$2,355 |
6 |
Comptuer Supplies Expense |
$3,455 |
7 |
Advertising expense - |
|
Beg. Balance |
$1,718 |
|
cash paid |
$980 |
|
Ending Balance |
$2,698 |
|
8 |
Mileage Expense - |
|
Beg. Balance |
$654 |
|
Cash paid |
$145 |
|
Ending Balance |
$799 |
|
9 |
Miscellaneous Expense |
$230 |
10 |
Repairs Expense - Computer - |
|
Beg. Balance |
$705 |
|
cash paid |
$480 |
|
Ending Balance |
$1,185 |
Ending Balances - |
|
Accounts Receivables |
|
Beg. Balance |
$13,418 |
Less: Cash received from customers (4,750 + 3,900) |
($8,650) |
Ending balance |
$4,769 |
Computer Service Revenue |
|
Beg. Balance |
$29,989 |
Add: Cash services performed |
$5,975 |
Ending Balance |
35,964 |