Question

Serial Problem Business Solutions LO P1, P2, P3, P4, P5

After the success of the company’s first two months, Santana Rey continues to operate Business Solutions. The November 30, 2015, unadjusted trial balance of Business Solutions (reflecting its transactions for October and November of 2015) follows.

No.	Account Title	Debit			Credit
101	Cash	$	39,164
106	Accounts receivable		12,918
126	Computer supplies		2,645
128	Prepaid insurance		1,980
131	Prepaid rent		2,960
163	Office equipment		8,400
164	Accumulated depreciation—Office equipment				$	0
167	Computer equipment		21,200
168	Accumulated depreciation—Computer equipment					0
201	Accounts payable					0
210	Wages payable					0
236	Unearned computer services revenue					0
307	Common stock					68,000
318	Retained earnings					0
319	Dividends		6,400
403	Computer services revenue					33,474
612	Depreciation expense—Office equipment		0
613	Depreciation expense—Computer equipment		0
623	Wages expense		2,500
637	Insurance expense		0
640	Rent expense		0
652	Computer supplies expense		0
655	Advertising expense		1,698
676	Mileage expense		694
677	Miscellaneous expenses		200
684	Repairs expense—Computer		715
	Totals	$	101,474		$	101,474

   

Business Solutions had the following transactions and events in December 2015.

Dec.	2	Paid $995 cash to Hillside Mall for Business Solutions’ share of mall advertising costs.
	3	Paid $460 cash for minor repairs to the company’s computer.
	4	Received $4,050 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 $115 per day.
	14	Notified by Alex’s Engineering Co. that Business Solutions’ bid of $7,600 on a proposed    project has been accepted. Alex’s paid a $2,500 cash advance to Business Solutions.
	15	Purchased $1,100 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 $5,775 cash.
	22–26	Took the week off for the holidays.
	28	Received $3,500 cash from Gomez Co. on its receivable.
	29	Reimbursed S. Rey for business automobile mileage (500 miles at $0.32 per mile).
	31	The company paid $1,300 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:

a.	The December 31 inventory count of computer supplies shows $640 still available.
b.	Three months have expired since the 12-month insurance premium was paid in advance.
c.	As of December 31, Lyn Addie has not been paid for four days of work at $115 per day.
d.	The computer system, acquired on October 1, is expected to have a four-year life with no salvage value.
e.	The office equipment, acquired on October 1, is expected to have a five-year life with no salvage value.
f.	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. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

        

2.1	Prepare adjusting entries to reflect a through f.

      

2.2	Post the journal entries to record each of the December transactions, adjusting entries to the accounts in the ledger.

General Ledger Accounts

      

3.	Prepare an adjusted trial balance as of December 31, 2015.

        

4.	Prepare an income statement for the three months ended December 31, 2015.

        

5.	Prepare a statement of owner’s equity for the three months ended December 31, 2015..

        

6.	Prepare a balance sheet as of December 31, 2015.

        

7.	Record and post the necessary closing entries for Business Solutions. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)

     

8.	Prepare a post-closing trial balance as of December 31, 2015.

     

Answer 1

Answer 1.
Journal Entry
Date	Particulars	Dr. Amt.	Cr. Amt.
2-Dec	Advertising Expenses	995.00
	Cash		995.00
	(record the advertising exp.)
3-Dec	Repair Expense - Computer	460.00
	Cash		460.00
	(record the repair exp. - Computer)
4-Dec	Cash	4,050.00
	Accounts Receivable		4,050.00
	(record the cash recevied)
10-Dec	Wages Expense	690.00
	Cash		690.00
	(record the wage expense)
14-Dec	Cash	2,500.00
	Unearned Computer Service Revenue		2,500.00
	(record the advance received)
15-Dec	Computer Supplies	1,100.00
	Accounts Payable		1,100.00
	(record the supplies purchased on credit)
16-Dec	No Entry
20-Dec	Cash	5,775.00
	Computer Service Revenue		5,775.00
	(Record the revenue earnes)
22-Dec	No Entry
28-Dec	Cash	3,500.00
	Accounts Receivable		3,500.00
	(record the cash recd)
29-Dec	Mileage Expense	160.00
	Cash		160.00
	(record the mileage expense)
31-Dec	Dividends	1,300.00
	Cash		1,300.00
	(record the cash withdrawl)
Answer 2-a
Adjusting Journal Entry
Date	Particulars	Dr. Amt.	Cr. Amt
a.	Computer Supplies Expense	3,105.00		$3,745 - $640
	Computer Supplies		3,105.00
	(record the supplies expense)
b.	Insurance Expense	495.00		$1,980 X 3/12
	Prepaid Insurance		495.00
	(record the insurance Expense for 3 months)
c.	Wages Expense	460.00		$115 X 4
	Wages Payable		460.00
	(record the wages expense)
d.	Depreciation Expense - Computer Equip.	1,325.00		$21,200 / 4 Years X (3/12)
	Accum. Dep. - Comp. Equip		1,325.00
	(record the dep. Expense)
e.	Depreciation Expense - Office Equip.	420.00		$8,400 / 5 Years X (3/12)
	Accum. Dep. - Office Equip		420.00
	(record the dep. Expense)
f.	Rent Expense	2,220.00		$2,960 X 3/4
	Prepaid Insurance		2,220.00	$2,960 X 3/4
	(record the rent expense)

Answer 2-b.
Cash					Accounts Receivable					Computer Supplies
Beg. Bal.	39,164.00	995.00	2-Dec		Beg. Bal.	12,918.00	4,050.00	4-Dec		Beg. Bal.	2,645.00	3,105.00	a.
4-Dec	4,050.00	460.00	3-Dec				3,500.00	28-Dec		15-Dec	1,100.00
14-Dec	2,500.00	690.00	10-Dec
20-Dec	5,775.00	160.00	29-Dec
28-Dec	3,500.00	1,300.00	31-Dec
End. Bal.	51,384.00				End. Bal.	5,368.00				End. Bal.	640.00
Prepaid Insurance					Prepaid Rent					Office Equipment
Beg. Bal.	1,980.00	495.00	b.		Beg. Bal.	2,960.00	2,220.00	f.		Beg. Bal.	8,400.00
End. Bal.	1,485.00				End. Bal.	740.00				End. Bal.	8,400.00
Accumulated Dep.- Equipment					Computer Equipment					Accumulated Dep.- Computer Equipment
Beg. Bal.		-			Beg. Bal.	21,200.00				Beg. Bal.		-
		420.00	e.									1,325.00	d.
End. Bal.		420.00			End. Bal.	21,200.00				End. Bal.		1,325.00
Accounts Payable					Wages Payable					Unearned Computer Service Revenue
Beg. Bal.		-			Beg. Bal.		-			Beg. Bal.		-
		1,100.00	15-Dec				460.00	c.				2,500.00	14-Dec
End. Bal.		1,100.00			End. Bal.		460.00			End. Bal.		2,500.00
Common Stock					Dividends					Computer Service Revenue
Beg. Bal.		68,000.00			Beg. Bal.	6,400.00				Beg. Bal.		33,474.00
					31-Dec	1,300.00						5,775.00	20-Dec
End. Bal.		68,000.00			End. Bal.	7,700.00				End. Bal.		39,249.00
Dep. Exp. - Office Equipment					Dep. Exp. - Computer Equipment					Wages Expense
Beg. Bal.	-				Beg. Bal.	-				Beg. Bal.	2,500.00
e.	420.00				d.	1,325.00				10-Dec	690.00
										c.	460.00
End. Bal.	420.00				End. Bal.	1,325.00				End. Bal.	3,650.00
Insurance Expense					Rent Expense					Computer Supplies Expense
Beg. Bal.	-				Beg. Bal.	-				Beg. Bal.	-
b.	495.00				f.	2,220.00				a.	3,105.00
End. Bal.	495.00				End. Bal.	2,220.00				End. Bal.	3,105.00
Advertising Expense					Mileage Expense					Misc. Expense
Beg. Bal.	1,698.00				Beg. Bal.	694.00				Beg. Bal.	200.00
2-Dec	995.00				29-Dec	160.00
End. Bal.	2,693.00				End. Bal.	854.00				End. Bal.	200.00
Repair Expense - Computer
Beg. Bal.	715.00
3-Dec	460.00
End. Bal.	1,175.00

Answer 3.
Business Solution
Adjusted Trial Balance
Dec 31, 2015
Accounts Title	Debits	Credits
Cash	51,384.00
Accounts Receivable	5,368.00
Computer Supplies	640.00
Prepaid Insurance	1,485.00
Prepaid Rent	740.00
Office Equipment	8,400.00
Accumulated Dep.- Equipment		420.00
Computer Equipment	21,200.00
Accumulated Dep.- Computer Equipment		1,325.00
Accounts Payable		1,100.00
Wages Payable		460.00
Unearned Computer Service Revenue		2,500.00
Common Stock		68,000.00
Dividends	7,700.00
Computer Service Revenue		39,249.00
Dep. Exp. - Office Equipment	420.00
Dep. Exp. - Computer Equipment	1,325.00
Wages Expense	3,650.00
Insurance Expense	495.00
Rent Expense	2,220.00
Computer Supplies Expense	3,105.00
Advertising Expense	2,693.00
Mileage Expense	854.00
Misc. Expense	200.00
Repair Expense - Computer	1,175.00
Total	113,054.00	113,054.00
		-
Answer 4.
Business Solution
Income Statement
For Three Months Ended Dec 31, 2015
Revenues:
Computer Service Revenue		39,249.00
Expenses
Dep. Exp. - Office Equipment	420.00
Dep. Exp. - Computer Equipment	1,325.00
Wages Expense	3,650.00
Insurance Expense	495.00
Rent Expense	2,220.00
Computer Supplies Expense	3,105.00
Advertising Expense	2,693.00
Mileage Expense	854.00
Misc. Expense	200.00
Repair Expense - Computer	1,175.00
Total Expenses		16,137.00
Net Income (Loss)		23,112.00
Answer 5.
Business Solution
Statement of Retained Earnings
For Three Months Ended Dec 31, 2015
Beginning Balance	-
Net Income (Loss)	23,112.00
Sub-total	23,112.00
Dividends	(7,700.00)
Ending Balance - Dec 31, 2016	15,412.00
Answer 6.
Business Solution
Balance Sheet
Dec 31, 2017
Assets
Current Assets
Cash		51,384.00
Accounts Receivable		5,368.00
Computer Supplies		640.00
Prepaid Insurance		1,485.00
Prepaid Rent		740.00
Total Current Assets			59,617.00
Property, Plant & Equipment
Office Equipment	8,400.00
Accumulated Dep.- Equipment	(420.00)	7,980.00
Computer Equipment	21,200.00
Accumulated Dep.- Computer Equipment	(1,325.00)	19,875.00
Total Property, Plant & Equipment			27,855.00
Total Assets			87,472.00
Liabilities & Owners' Equity
Liabilities
Current Liabilities
Accounts Payable		1,100.00
Wages Payable		460.00
Unearned Computer Service Revenue		2,500.00
Total Current Liabilities			4,060.00
Long-Term Liabilities			-
Total Liabilities			4,060.00
Total StockHolders' Equity
Common Stock		68,000.00
Retained Earnings		15,412.00
Total Stockholders' Equity			83,412.00
Total Liabilities & Stockholders' Equity			87,472.00
			-
Answer 8.
Business Solution
Closing Trial Balance
Dec 31, 2016
Accounts Title	Debits	Credits
Cash	51,384.00
Accounts Receivable	5,368.00
Computer Supplies	640.00
Prepaid Insurance	1,485.00
Prepaid Rent	740.00
Office Equipment	8,400.00
Accumulated Dep.- Equipment		420.00
Computer Equipment	21,200.00
Accumulated Dep.- Computer Equipment		1,325.00
Accounts Payable		1,100.00
Wages Payable		460.00
Unearned Computer Service Revenue		2,500.00
Common Stock		68,000.00
Retained Earnings		15,412.00
Total	89,217.00	89,217.00

Answer 7.
Closing Journal Entry
Date	Particulars	Dr. Amt.	Cr. Amt
a.	Computer Service Revenue	39,249.00
	Income Summary
	(Record to close the revenue accounts)
b.	Income Summary	16,137.00
	Dep. Exp. - Office Equipment		420.00
	Dep. Exp. - Computer Equipment		1,325.00
	Wages Expense		3,650.00
	Insurance Expense		495.00
	Rent Expense		2,220.00
	Computer Supplies Expense		3,105.00
	Advertising Expense		2,693.00
	Mileage Expense		854.00
	Misc. Expense		200.00
	Repair Expense - Computer		1,175.00
	(Record to close the expense accounts)
c.	Income Summary	23,112.00
	Retained Earnings		23,112.00
	(Record to close the Income Summary)
d.	Retained Earnings	7,700.00
	Dividends		7,700.00
	(Record the close of dividends)