In: Accounting
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. | ||||
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) |