Question

Adria Lopez created Success Systems on October 1, 2013. The company has been successful, and its list of customers has grown. To accommodate the growth, the accounting system is modified to set up separate accounts for each customer. The following chart of accounts includes the account number used for each account and any balance as of December 31, 2013. Adria Lopez decided to add a fourth digit with a decimal point to the 106 account number that had been used for the single Accounts Receivable account. This change allows the company to continue using the existing chart of accounts.

No.	Account Title	Debit		Credit
101	Cash	$	48,532
106.1	Alex’s Engineering Co.		0
106.2	Wildcat Services		0
106.3	Easy Leasing		0
106.4	IFM Co.		3,140
106.5	Liu Corp.		0
106.6	Gomez Co.		2,738
106.7	Delta Co.		0
106.8	KC, Inc.		0
106.9	Dream, Inc.		0
119	Merchandise inventory		0
126	Computer supplies		750
128	Prepaid insurance		1,935
131	Prepaid rent		865
163	Office equipment		8,190
164	Accumulated depreciation—Office equipment			$	340
167	Computer equipment		21,700
168	Accumulated depreciation—Computer equipment				1,210
201	Accounts payable				1,200
210	Wages payable			$	980
236	Unearned computer services revenue				1,440
307	Common stock				69,000
318	Retained earnings				13,680
319	Dividends	$	0
403	Computer services revenue				0
413	Sales				0
414	Sales returns and allowances		0
415	Sales discounts		0
502	Cost of goods sold		0
612	Depreciation expense—Office equipment		0
613	Depreciation expense—Computer equipment		0
623	Wages expense		0
637	Insurance expense		0
640	Rent expense		0
652	Computer supplies expense		0
655	Advertising expense		0
676	Mileage expense		0
677	Miscellaneous expenses		0
684	Repairs expense—Computer		0

   

In response to requests from customers, A. Lopez will begin selling computer software. The company will extend credit terms of 1/10, n/30, FOB shipping point, to all customers who purchase this merchandise. However, no cash discount is available on consulting fees. Additional accounts (Nos. 119, 413, 414, 415, and 502) are added to its general ledger to accommodate the company’s new merchandising activities. Also, Success Systems does not use reversing entries and, therefore, all revenue and expense accounts have zero beginning balances as of January 1, 2014. Its transactions for January through March follow:

  

Jan.	4		The company paid cash to Lyn Addie for five days’ work at the rate of $245 per day. Four of the five days relate to wages payable that were accrued in the prior year.
	5		Adria Lopez invested an additional $23,300 cash in the company in exchange for more common stock.
	7		The company purchased $6,500 of merchandise from Kansas Corp. with terms of 1/10, n/30, FOB shipping point, invoice dated January 7.
	9		The company received $2,738 cash from Gomez Co. as full payment on its account.
	11		The company completed a five-day project for Alex’s Engineering Co. and billed it $5,480, which is the total price of $6,920 less the advance payment of $1,440.
	13		The company sold merchandise with a retail value of $4,600 and a cost of $3,370 to Liu Corp., invoice dated January 13.
	15		The company paid $790 cash for freight charges on the merchandise purchased on January 7.
	16		The company received $4,080 cash from Delta Co. for computer services provided.
	17		The company paid Kansas Corp. for the invoice dated January 7, net of the discount.
	20		Liu Corp. returned $400 of defective merchandise from its invoice dated January 13. The returned merchandise, which had a $310 cost, is discarded. (The policy of Success Systems is to leave the cost of defective products in cost of goods sold.)
	22		The company received the balance due from Liu Corp., net of both the discount and the credit for the returned merchandise.
	24		The company returned defective merchandise to Kansas Corp. and accepted a credit against future purchases. The defective merchandise invoice cost, net of the discount, was $496.
	26		The company purchased $9,800 of merchandise from Kansas Corp. with terms of 1/10, n/30, FOB destination, invoice dated January 26.
	26		The company sold merchandise with a $4,580 cost for $5,950 on credit to KC, Inc., invoice dated January 26.
	29		The company received a $496 credit memorandum from Kansas Corp. concerning the merchandise returned on January 24.
	31		The company paid cash to Lyn Addie for 10 days’ work at $245 per day.
Feb.	1		The company paid $2,595 cash to Hillside Mall for another three months’ rent in advance.
	3		The company paid Kansas Corp. for the balance due, net of the cash discount, less the $496 amount in the credit memorandum.
	5		The company paid $510 cash to the local newspaper for an advertising insert in today’s paper.
	11		The company received the balance due from Alex’s Engineering Co. for fees billed on January 11.
	15		The company paid $4,790 cash for dividends.
	23		The company sold merchandise with a $2,480 cost for $3,220 on credit to Delta Co., invoice dated February 23.
	26		The company paid cash to Lyn Addie for eight days’ work at $245 per day.
	27		The company reimbursed Adria Lopez for business automobile mileage (500 miles at $0.30 per mile).
Mar.	8		The company purchased $2,740 of computer supplies from Harris Office Products on credit, invoice dated March 8.
	9		The company received the balance due from Delta Co. for merchandise sold on February 23.
	11		The company paid $940 cash for minor repairs to the company’s computer.
	16		The company received $5,270 cash from Dream, Inc., for computing services provided.
	19		The company paid the full amount due to Harris Office Products, consisting of amounts created on December 15 (of $1,200) and March 8.
	24		The company billed Easy Leasing for $9,227 of computing services provided.
	25		The company sold merchandise with a $2,182 cost for $2,870 on credit to Wildcat Services, invoice dated March 25.
	30		The company sold merchandise with a $1,108 cost for $2,250 on credit to IFM Company, invoice dated March 30.
	31		The company reimbursed Adria Lopez for business automobile mileage (700 miles at $0.30 per mile).

   

The following additional facts are available for preparing adjustments on March 31 prior to financial statement preparation:

   

a.	The March 31 amount of computer supplies still available totals $2,095.
b.	Three more months have expired since the company purchased its annual insurance policy at a $2,580 cost for 12 months of coverage.
c.	Lyn Addie has not been paid for seven days of work at the rate of $245 per day.
d.	Three months have passed since any prepaid rent has been transferred to expense. The monthly rent expense is $865.
e.	Depreciation on the computer equipment for January 1 through March 31 is $1,210.
f.	Depreciation on the office equipment for January 1 through March 31 is $340.
g.	The March 31 amount of merchandise inventory still available totals $564.

4.

Required information

Required:
1.	Prepare journal entries to record each of the January through March transactions. (If no entry is required for a particular transaction, select "No journal entry required" in the first account field.)
	Post the journal entries in part 1 to the accounts in the company’s general ledger. (Note: Begin with the ledger’s post-closing adjusted balances as of December 31, 2013.) (Record the transactions in the order presented. Do not skip rows.) References eBook & Resources WorksheetLearning Objective: 04-P1 Analyze and record transactions for merchandise purchases using a perpetual system.Learning Objective: 04-P3 Prepare adjustments and close accounts for a merchandising company. Difficulty: 3 HardLearning Objective: 04-P2 Analyze and record transactions for merchandise sales using a perpetual system.Learning Objective: 04-P4 Define and prepare multiple-step and single-step income statements. Check my work 6. Required information 3. Prepare a partial work sheet consisting of the first six columns that includes the unadjusted trial balance, the March 31 adjustments (a) through (g), and the adjusted trial balance.       References eBook & Resources WorksheetLearning Objective: 04-P1 Analyze and record transactions for merchandise purchases using a perpetual system.Learning Objective: 04-P3 Prepare adjustments and close accounts for a merchandising company. Difficulty: 3 HardLearning Objective: 04-P2 Analyze and record transactions for merchandise sales using a perpetual system.Learning Objective: 04-P4 Define and prepare multiple-step and single-step income statements. Check my work 7. Required information 4. Prepare an income statement (from the adjusted trial balance in part 3) for the three months ended March 31, 2014. Use a single-step format. List all expenses without differentiating between selling expenses and general and administrative expenses.       References eBook & Resources WorksheetLearning Objective: 04-P1 Analyze and record transactions for merchandise purchases using a perpetual system.Learning Objective: 04-P3 Prepare adjustments and close accounts for a merchandising company. Difficulty: 3 HardLearning Objective: 04-P2 Analyze and record transactions for merchandise sales using a perpetual system.Learning Objective: 04-P4 Define and prepare multiple-step and single-step income statements. Check my work 8. Required information 5. Prepare a statement of retained earnings (from the adjusted trial balance in part 3) for the three months ended March 31, 2014.       References eBook & Resources WorksheetLearning Objective: 04-P1 Analyze and record transactions for merchandise purchases using a perpetual system.Learning Objective: 04-P3 Prepare adjustments and close accounts for a merchandising company. Difficulty: 3 HardLearning Objective: 04-P2 Analyze and record transactions for merchandise sales using a perpetual system.Learning Objective: 04-P4 Define and prepare multiple-step and single-step income statements. Check my work 9. Required information 6. Prepare a classified balance sheet (from the adjusted trial balance) as of March 31, 2014.

     

Answer 1

Journal Entries

Jan - 4 Wages Payable 980

Wages Expense 245

Cash 1225

Jan - 5 Cash 23,300

Common Stock 23,300

Jan - 7 Merchandise Inventory 6,500

Accounts Payable - Kansas Corp 6,500

Jan - 9 Cash 2,738

Accounts Receivable - Gomez Co. 2,738

Jan - 11 Alex Engineering 5,480

Unearned Computer Revenue 1440

Computer Service Revenue 6,920

Jan - 13 LIu Corp 4,600

Sales 4,600

Jan - 13 Cost of Goods Sold 3,370

Merchandise Inventory 3,370

Jan - 15 Miscellaneous Expense 790

Cash 790

Jan - 16 Cash 4,080

Computer Service Revenue 4,080

Jan - 17 Accounts Payable - Kans Corp 6,500

Sales Discount 65

Cash 6,435

Jan - 20 Sales Returns & ALlowance 400

Liu COrp 400

Jan - 22 Cash 4,200

Liu Corp 4,200

Jan - 24 No Entry

'Jan - 26 Merchandise Inventory 9,800

Accounts Payable - Kans Corp 9,800

Jan - 26 KC Inc. 5,950

Sales 5,950

Jan - 26 COst of goods sold 4,580

Merchandise Inventroy 4,580

Jan - 29 No ENtry

Jan - 31 Wages Expense 2,450

Cash 2,450

Feb - 1 Prepaid Rent 2,595

Cash 2,595

Feb - 3 Accounts Payable 9206

Cash 9206

Feb - 5 Advertisement Expense 510

Cash 510

Feb - 11 Csah 5480

Alex Enginerring CO. 5480

Feb - 15 Dividends 4790

Cash 4790

Feb - 23 Delta 3,220

Sales 3220

Feb - 23 Cost of Goods Sold 2480

Merchandise Inventory 2480

Feb - 27 Milleage Expense 150

Cash 150

Mar- 8 Computer Supplies 2,740

Accounts Payable - Harris Offic 2,740

Mar - 9 Cash 3, 220

Delta 3,220

Mar - 11 Repairs Expense 940

Cash 940

Mar - 16 Cash 5,270

Computer Service Revenue 5,270

Mar - 19 Accounts Payble - Harris Office 3,940

Cash 3,940

Mar - 24 Easy Leasing 9,227

Computer Service Revenue 9,227

Mar - 25 WIld Cats 2,870

Sales 2870

Mae - 25 Cost of Goods sold 2,182

Merchandise Inventory 2,182

Mar - 30 IFM Company 2,250

Sales 2,250

Mar - 30 Cost of Goods sold 1,108

Merchandise Inventory 1,108

Mar - 31 Milleage Expense 210

Cash 210