Question

Santana Rey created Business Solutions on October 1, 2020. 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, 2020. Santana Rey 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	$	48,472
106.1	Alex’s Engineering Co.		0
106.2	Wildcat Services		0
106.3	Easy Leasing		0
106.4	IFM Co.		3,120
106.5	Liu Corp.		0
106.6	Gomez Co.		2,808
106.7	Delta Co.		0
106.8	KC, Inc.		0
106.9	Dream, Inc.		0
119	Merchandise inventory		0
126	Computer supplies		620
128	Prepaid insurance		2,097
131	Prepaid rent		885
163	Office equipment		8,030
164	Accumulated depreciation—Office equipment				$	210
167	Computer equipment		20,900
168	Accumulated depreciation—Computer equipment					1,090
201	Accounts payable					1,260
210	Wages payable					620
236	Unearned computer services revenue					1,340
307	Common stock					72,952
318	Retained earnings					9,460
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, S. Rey 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. Its transactions for January through March follow.

Jan.		4		The company paid cash to Lyn Addie for five days’ work at the rate of $155 per day. Four of the five days relate to wages payable that were accrued in the prior year.
		5		Santana Rey invested an additional $24,900 cash in the company in exchange for more common stock.
		7		The company purchased $6,700 of merchandise from Kansas Corp. with terms of 1/10, n/30, FOB shipping point, invoice dated January 7.
		9		The company received $2,808 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 $5,410, which is the total price of $6,750 less the advance payment of $1,340. The company debited Unearned Computer Services Revenue for $1,340.
		13		The company sold merchandise with a retail value of $4,400 and a cost of $3,550 to Liu Corp., invoice dated January 13.
		15		The company paid $770 cash for freight charges on the merchandise purchased on January 7.
		16		The company received $4,050 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		The company gave a price reduction (allowance) of $700 to Liu Corp. and credited Liu's accounts receivable for that amount.
		22		The company received the balance due from Liu Corp., net of the discount and the allowance.
		24		The company returned defective merchandise to Kansas Corp. and accepted a credit against future purchases (debited accounts payable). The defective merchandise invoice cost, net of the discount, was $486.
		26		The company purchased $9,200 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 $4,510 cost for $5,890 on credit to KC, Inc., invoice dated January 26.
		31		The company paid cash to Lyn Addie for 10 days’ work at $155 per day.
Feb.		1		The company paid $2,655 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 $486 credit from merchandise returned on January 24.
		5		The company paid $600 cash to Facebook for an advertisement to appear on February 5 only.
		11		The company received the balance due from Alex’s Engineering Co. for fees billed on January 11.
		15		The company paid a $4,690 cash dividend.
		23		The company sold merchandise with a $2,540 cost for $3,370 on credit to Delta Co., invoice dated February 23.
		26		The company paid cash to Lyn Addie for eight days’ work at $155 per day.
		27		The company reimbursed Santana Rey $288 cash for business automobile mileage. The company recorded the reimbursement as "Mileage Expense."
Mar.		8		The company purchased $2,820 of computer supplies from Harris Office Products on credit with terms of n/30, FOB destination, invoice dated March 8.
		9		The company received the balance due from Delta Co. for merchandise sold on February 23.
		11		The company paid $800 cash for minor repairs to the company’s computer.
		16		The company received $5,290 cash from Dream, Inc., for computing services provided.
		19		The company paid the full amount due of $4,080 to Harris Office Products, consisting of amounts created on December 15 (of $1,260) and March 8.
		24		The company billed Easy Leasing for $9,227 of computing services provided.
		25		The company sold merchandise with a $2,092 cost for $2,860 on credit to Wildcat Services, invoice dated March 25.
		30		The company sold merchandise with a $1,118 cost for $2,310 on credit to IFM Company, invoice dated March 30.
		31		The company reimbursed Santana Rey $128 cash for business automobile mileage. The company recorded the reimbursement as "Mileage Expense."

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

1. The March 31 amount of computer supplies still available totals $2,095.
2. Prepaid Insurance coverage of $699 expired during this three-month period.
3. Lyn Addie has not been paid for seven days of work at the rate of $155 per day.
4. Prepaid rent of $2,655 expired during this three-month period.
5. Depreciation on the computer equipment for January 1 through March 31 is $1,090.
6. Depreciation on the office equipment for January 1 through March 31 is $210.
7. The March 31 amount of merchandise inventory still available totals $574.

Answer 1

Date	Account Titles & Explanation	Ref.	Debit	Credit
Jan.
4	Wages Expense	623	155
	Wages Payable	210	620
	Cash	101		775
	Paid employee.
5	Cash	101	24900
	A. Lopez, Capital	301		24,900
	Additional investment by owner.
7	Merchandise Inventory	119	6700
	Accounts Payable	201		6,700
	Purchased merchandise on credit.
9	Cash	101	2808
	Accounts Receivable—Gomez Co.	106.6		2,808
	Collected accounts receivable.
11	Accounts Receivable—Alex’s Eng. Co	106.1	5,410
	Unearned Computer Services Revenue	236	1340
	Computer Services Revenue	403		6,750
	Completed work on project.
13	Accounts Receivable—Liu Corp.	106.5	4,400
	Sales	413		4,400
	Sold merchandise on credit.
13	Cost of Goods Sold	502	3550
	Merchandise Inventory	119		3550
	To record cost of Jan. 13 sale.
15	Merchandise Inventory	119	770
	Cash	101		770
	Paid freight on incoming merchandise.
16	Cash	101	4050
	Computer Services Revenue	403		4,050
	Collected cash revenue from customer.
17	Accounts Payable	201	6700
	Merchandise Inventory	119		67
	Cash	101		6,633
	Paid account payable within discount period. (Discount taken = $6,700 x .01 = $67)
20	Sales Returns and Allowances	414	700
	Accounts Receivable—Liu Corp.	106.5		700
	Customer returned defective goods.
22	Cash	101	3,663
	Sales Discounts	415	37
	Accounts Receivable—Liu Corp	106.5		3,700
24	Accounts Payable	201	486
	Merchandise Inventory	119		486
	Returned merchandise for credit.
26	Merchandise Inventory	119	9,200
	Accounts Payable	201		9,200
	Purchased merchandise for resale.
26	Accounts Receivable—KC, Inc	106.8	5,890
	Sales	413		5,890
	Sold merchandise on credit.
26	Cost of Goods Sold	502	4510
	Merchandise Inventory	119		4,510
	To record cost of Jan. 26 sale.
31	Wages Expense	623	1550
	Cash	101		1,550
	Paid employee wages.
Feb
1	Prepaid Rent	131	2655
	Cash	101		2,655
	Paid three months’ rent in advance.
3	Accounts Payable	201	8,714
	Merchandise Inventory (9200 x 1%)	119		92
	Cash	101		8,622
	Paid account payable within discount period.
5	Advertising Expense	655	600
	Cash	101		600
	Purchased ad in local newspaper.
11	Cash	101	5,410
	Accounts Receivable—Alex’s Eng. Co.	106.1		5,410
	Collected accounts receivable.
15	Dividends	302	4690
	Cash	101		4,690
	Paid Dividend
23	Accounts Receivable—Delta Co.	106.7	3,370
	Sales	413		3,370
	Sold merchandise on credit.
23	Cost of Goods Sold	502	2,540
	Merchandise Inventory	119		2,540
	To record cost of Feb. 23 sale.
26	Wages Expense	623	1240
	Cash	101		1,240
	Paid employee.
27	Mileage Expense	676	288
	Cash	101		288
	Reimbursed Lopez for business mileage.
March
8	Computer Supplies	126	2820
	Accounts Payable	201		2,820
	Purchased supplies on credit.
9	Cash	101	3,370
	Accounts Rec.—Delta Co.	106.7		3,370
	Collected accounts receivable.
11	Repairs Expense–Computer	684	800
	Cash	101		800
	Paid for computer repairs.
16	Cash	101	5290
	Computer Services Revenue	403		5,290
	Collected cash revenue from customer.
19	Accounts Payable	201	4080
	Cash	101		4,080
	Paid accounts payable ($1,260 + $2820).
24	Accounts Receivable—Easy Leasing	106.3	9,227
	Computer Services Revenue	403		9,227
	Billed customer for services.
25	Accounts Receivable—Wildcat Services	106.2	2,860
	Sales	413		2,860
	Sold merchandise on credit.
25	Cost of Goods Sold	502	2092
	Merchandise Inventory	119		2,092
	To record cost of March 25 sale.
30	Accounts Receivable—IFM Co.	106.4	2310
	Sales	413		2,310
	Sold merchandise on credit.
30	Cost of Goods Sold	502	1118
	Merchandise Inventory	119		1,118
	To record cost of March 30 sale.
31	Mileage Expense	676	128
	Cash	101		128
	Reimbursed Lopez for business mileage.