Question

In: Accounting

After the success of the company’s first two months, Santana Rey continues to operate Business Solutions....

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.

Solutions

Expert Solution

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 –

  1. Cash Account

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

           

  1. Adjusting Entries:

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. Expenses Accounts Closing Balances –

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

  1. Ending balances –

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


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