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, 2017, unadjusted trial balance of Business Solutions (reflecting its transactions for October and November of 2017) follows. No. Account Title Debit Credit 101 Cash $ 38,664 106 Accounts receivable 12,818 126 Computer supplies 2,645 128 Prepaid insurance 2,040 131 Prepaid rent 3,240 163 Office equipment 8,700 164 Accumulated depreciation—Office equipment $ 0 167 Computer equipment 20,400 168 Accumulated depreciation—Computer equipment 0 201 Accounts payable 0 210 Wages payable 0 236 Unearned computer services revenue 0 307 Common stock 64,000 318 Retained earnings 0 319 Dividends 6,200 403 Computer services revenue 36,129 612 Depreciation expense—Office equipment 0 613 Depreciation expense—Computer equipment 0 623 Wages expense 2,125 637 Insurance expense 0 640 Rent expense 0 652 Computer supplies expense 0 655 Advertising expense 1,678 676 Mileage expense 644 677 Miscellaneous expenses 250 684 Repairs expense—Computer 725 Totals $ 100,129 $ 100,129 Business Solutions had the following transactions and events in December 2017. Dec. 2 Paid $1,025 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 $4,750 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 $120 per day. 14 Notified by Alex’s Engineering Co. that Business Solutions’ bid of $7,800 on a proposed project has been accepted. Alex’s paid a $2,200 cash advance to Business Solutions. 15 Purchased $2,000 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 $6,125 cash. 22–26 Took the week off for the holidays. 28 Received $3,800 cash from Gomez Co. on its receivable. 29 Reimbursed S. Rey for business automobile mileage (400 miles at $0.26 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 $640 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 $120 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: 1. Prepare journal entries to record each of the December transactions and events for Business Solutions. 2-a. Prepare adjusting entries to reflect a through f. 2-b. Post the journal entries to record each of the December transactions, adjusting entries to the accounts in the ledger. 3. Prepare an adjusted trial balance as of December 31, 2017. 4. Prepare an income statement for the three months ended December 31, 2017. 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.

Answer 1

1.

BUSINESS SOLUTIONS
Journal Entries for the months of December 2017
Date	Account & Desrcipiton	Ref	Debit	Credit
2017
Dec.2	Advertising	655	1025
	Cash	101		1025
	(Payment to Hill side mall for adverting expenses)
Dec.3	Repair expense - Computer	684	460
	Cash	101		460
	(Repair expense for computer )
Dec.4	Cash	101	4750
	Accounts receivable	106		4750
	(Receipt from Alex's Engineering company on account)
Dec.10	Wages expense	623	720
	Cash	101		720
	(Wages to lynn for six days)
Dec.14	Cash	101	2200
	Unearned revenue - computer services	236		2200
	(Advance receipt from Alex's Engineering company)
Dec.15	Computer supplies	126	2000
	Accounts payable	201		2000
	(Computer supplies purchased on account)
Dec.16	No entry required
Dec.20	Cash	101	6125
	Computer services revenue	403		6125
	(Cash received from Liu Corporation for services)
Dec.22	No entry required
Dec.26	No entry required
Dec.28	Cash	101	3800
	Accounts Receivable	106		3800
	(Receipt from Gomex Corp. On account)
Dec.29	Mileage expenses	676	104
	Cash	101		104
	(Reimbursement of mileage expense for 400 miles @$0.26)
Dec.31	Dividends	302	1200
	Cash	101		1200
	(Cash withdrawn by S.rey)
2-a BUSINESS SOLUTIONS
Adjustment Journal Entries for the months of December 2017
a	Computer supplies expense	652	4005
	Computer supplies	126		4005
	(Computer supplies expense accounted)
b	Insurance expense	637	510
	Prepaid insurance	128		510
	(Insurance expense for 3 months accounted)
c	Wages expense	623	480
	Wages payable	210		480
	(Wages to Lynn for four days not paid)
d	Depreciation expense - computer equipment	613	1275
	Accumulated depreciation - computer equipment	168		1275
	(Depreciation expense on computer for three months )
e	Depreciation expense - office equipment	612	435
	Accumulated depreciation - office equipment	164		435
	(Depreciation expense on office eqpt.for three months )
f	Rent expense		2430
	Prepaid rent			2430
	(Rent expense for three months)
1. Insurance expense for three months = ($2,040/12)*3 = $510
2.Wages payable for four days @120 per day = $120 * 4 = $480
3.Depreciation on computer system.
Purchase value = $20,400
Life      = 4 years
Salvage value =0
Annual depreciation = $20,400 / 4 = $5,100
Depreciation for three months (From Oct.17 to Dec.'17) = ($5,100/12)*3		=	1275
4.Depreciation on office equipment.
Purchase value = $8,700
Life      = 5 years
Salvage value =0
Annual depreciation = $8,700 / 5 = $1,740
Depreciation for three months (From Oct.17 to Dec.'17) = ($1,740/12)*3		=	435
5. Rent expense
Prepaid rent = $3,240
Period = 4 months
Rent for three months = ($3,240/4)*3
=$2,430

2-b.

101 - Cash

106 - Accounts Receivable

126 - Computer Supplies

Date

Account

Debit

Date

Account

Credit

Date

Account

Debit

Date

Account

Credit

Date

Account

Debit

Date

Account

Credit

2017

2017

2017

2017

2017

2017

Dec.1

Balance

38664

Dec.2

Advertising expense

1025

Dec.1

Balance

12818

Dec.4

Cash

4750

Dec.1

Balance

2645

Dec.31

Computer supplies expense

4005

Dec.4

Accounts Receivable

4750

Dec.3

Repair expense - Computer

460

Dec.28

Cash

3800

Dec.15

Accounts payable

2000

Dec.31

Dec.14

Unearned computer service revenue

2200

Dec.10

Wages Expense

720

12818

8550

Dec.20

Compter Service Revenue

6125

Dec.29

Mileage Expense

104

End Bal.

4268

4645

4005

Dec.28

Accounts Receivable

3800

Dec.30

Dividends

1200

End Bal.

640

55539

3509

End Bal.

52030

128 - Prepaid insurance

131 - Prepaid rent

163 - Office equipment

Date

Account

Debit

Date

Account

Credit

Date

Account

Debit

Date

Account

Credit

Date

Account

Debit

Date

Account

Credit

2017

2017

2017

2017

2017

2017

Dec.1

Balance

2040

Dec.31

Insurnac Expense

510

Dec.1

Balance

3240

Dec.31

Rent Expense

2430

Dec.1

Balance

8700

Dec.31

2040

510

3240

2430

8700

0

End Bal.

1530

End Bal.

810

End Bal.

8700

164 - Accumulated depreciation - Office equipment

167 - Computer equipment

168 - Acumulated depreciation - Computer equipment

Date

Account

Debit

Date

Account

Credit

Date

Account

Debit

Date

Account

Credit

Date

Account

Debit

Date

Account

Credit

2017

2017

2017

2017

2017

2017

Dec.31

Depreciation exp - office eqpt

435

Dec.1

Balance

20400

Dec.31

Depr.Expense - computer eqpt

1275

0

435

20400

0

0

1275

End Bal.

435

End Bal.

20400

End Bal.

1275

201 - Accounts payable

210 - Wages payable

236 - Unearned Compter service revenue

Date

Account

Debit

Date

Account

Credit

Date

Account

Debit

Date

Account

Credit

Date

Account

Debit

Date

Account

Credit

2017

2017

2017

2017

2017

2017

Dec.15

Computer supplies

2000

Dec.31

Wages expense

480

Dec.14

Cash

2200

0

2000

0

480

0

2200

End Bal.

2000

End Bal.

480

End Bal.

2200

307 - Common stock

319 - Dividends

403 - Computer Service revenue

Date

Account

Debit

Date

Account

Credit

Date

Account

Debit

Date

Account

Credit

Date

Account

Debit

Date

Account

Credit

2017

2017

2017

2017

2017

2017

Dec.1

Balance

64000

Dec.1

Balance

6200

Dec.1

Balance

36129

0

64000

Dec.31

Cash

1200

Dec.20

Cash

6125

End Bal.

64000

7400

42254

End.Bal.

612 - Depreciation expense - office equipment

613 - Depreciation expense - Computer equipment

623 - Wages expense

Date

Account

Debit

Date

Account

Credit

Date

Account

Debit

Date

Account

Credit

Date

Account

Debit

Date

Account

Credit

2017

2017

2017

2017

2017

2017

Dec.31

Accumulated dep. - office eqpt

435

Dec.31

Accum.dep-Computer

1275

Dec.1

Balance

2125

Dec.10

Cash

720

Dec.31

Wages payable

480

435

1275

3325

637 - Insurance expense

640 - Rent expense

652 - Computer supplies expense

Date

Account

Debit

Date

Account

Credit

Date

Account

Debit

Date

Account

Credit

Date

Account

Debit

Date

Account

Credit

2017

2017

2017

2017

2017

2017

Dec.31

Prepaid insurance

510

Dec.31

Prepaid rent

2430

Dec.31

Computer supplies

4005

510

2430

4005

655 - Advertising expense

676 - Mileage expense

677 - Miscellaneous expense

Date

Account

Debit

Date

Account

Credit

Date

Account

Debit

Date

Account

Credit

Date

Account

Debit

Date

Account

Credit

2017

2017

2017

2017

2017

2017

Dec.1

Balance

1678

Dec.1

Balance

644

Dec.1

Balance

250

Dec.2

Cash

1025

Dec.29

Cash

104

2703

748

250

684 - Repair expense - Computers

Date

Account

Debit

Date

Account

Credit

2017

2017

Dec.1

Balance

725

Dec.3

Cash

460

1185

3.

BUSINESS SOLUTIONS
Trial Balance as at December 31, 2017
		Adjusted
	Account	Debit	Credit
101	Cash	52030
106	Acounts receivable	4268
126	Computer supplies	640
128	Prepaid insurance	1530
131	Prepaid rent	810
163	Office equipment	8700
164	Accumulated depreciation - office equipment		435
167	Computer equipment	20400
168	Accumulated depreciation - Computer equipment		1275
201	Accounts payable		2000
210	Wages payable		480
236	Unearned computer service revenue		2200
307	Common Stock		64000
318	Dividends	7400
319	Retained earnings
403	Computer service revenue		42254
612	Depreciation expense - office equipment	435
613	Depreciation expense - computer equipment	1275
623	Wages expense	3325
637	Insurance expense	510
640	Rent expense	2430
652	Computer supplies expense	4005
655	Advertising expense	2703
676	Mileage expense	748
677	Miscellaneous expense	250
684	Repair expense - computer equipment	1185
		112644	112644

4., 5, 6 and 7

	BUSINESS SOLUTIONS
	Income statement for the three months ended December,31 2017
	Details	$	$
	Computer service revenue		42254
	Less: Expenses
	Computer supplies expense	4005
	Wages expense	3325
	Rent expense	2430
	Advertising expense	2703
	Depreciation expense - computer equipment	1275
	Depreciation expense - office equipment	435
	Repair expense - computer equipment	1185
	Mileage expense	748
	Insurance expense	510
	Miscellaneous expense	250
	Total Expenses		16866
	Net Income		25388
	BUSINESS SOLUTIONS
	Statement of stockholders' equity as at December,31 2016
	Common stock		64000
	Retaned earnings
	Balance as at January 1 , 2016	0
	Add: net income for the year	25388
	Less: dividends	7400
	Balance as at Deceber 31, 2016		17988
	Stockholders' equity		81988
	BUSINESS SOLUTIONS
	Balance Sheet as at December,31 2017
	Assets
	Cash		52030
	Acounts receivable		4268
	Computer supplies		640
	Prepaid insurance		1530
	Prepaid rent		810
	Current Assets		59278
	Office equipment	8700
	Less: Accumulated depreciation	435	8265
	Computer equipment	20400
	Less: Accumulated depreciation	1275	19125
	Total Assets		86668
	Liabilities & Equity
	Accounts payable		2000
	Wages payable		480
	Unearned computer service revenue		2200
	Total liabilities		4680
	Stockholders' equity
	Common stock		64000
	Retained earnings	0
	Add: Net income for the year	25388
	Less: Dividends	7400
	Ending balance		17988
	Total Liabilities & Equity		86668
	Return on Assets   (26,015 / 77,668 * )	33%
	Debt Ratio   (4,320 / 89,335)	5%
	Profit margin ratio (26,015 / 42,304)	61%
	Current Ratio (60,450 / 4,320)	13.99
	* Average total asets     = (89335 + 66000)/2 = 77,668
To close revenue account
Date	Account Title	Debit	Credit
Dec.31,2017	Computer Service Revenue	42254
	Income Summary		42254
To close expense accounts
Date	Account Title	Debit	Credit
Dec.31,2017	Income Summary	16866
	Computer supplies expense		4005
	Wages expense		3325
	Rent expense		2430
	Advertising expense		2703
	Depreciation expense - computer equipment		1275
	Depreciation expense - office equipment		435
	Repair expense - computer equipment		1185
	Mileage expense		748
	Insurance expense		510
	Miscellaneous expense		250
To close income summary accounts
Date	Account Title	Debit	Credit
Dec.31,2017	Income Summary	25388
	Income Summary		25388
To close dividend accounts
Date	Account Title	Debit	Credit
Dec.31,2017	Income Summary	7300
	Dividends		7300

8.

BUSINESS SOLUTIONS
Trial Balance as at December 31, 2017
		Post Closing
	Account	Debit	Credit
101	Cash	52030
106	Acounts receivable	4268
126	Computer supplies	640
128	Prepaid insurance	1530
131	Prepaid rent	810
163	Office equipment	8700
164	Accumulated depreciation - office equipment		435
167	Computer equipment	20400
168	Accumulated depreciation - Computer equipment		1275
201	Accounts payable		2000
210	Wages payable		480
236	Unearned computer service revenue		2200
307	Common Stock		64000
318	Dividends
319	Retained earnings		17988
403	Computer service revenue
612	Depreciation expense - office equipment
613	Depreciation expense - computer equipment
623	Wages expense
637	Insurance expense
640	Rent expense
652	Computer supplies expense
655	Advertising expense
676	Mileage expense
677	Miscellaneous expense
684	Repair expense - computer equipment
		88378	88378