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, 2016, unadjusted trial balance of Business Solutions (reflecting its transactions for October and November of 2016) follows.

No. Account Title Debit Credit
101 Cash $ 38,764
106 Accounts receivable 12,918
126 Computer supplies 2,645
128 Prepaid insurance 2,160
131 Prepaid rent 3,280
163 Office equipment 8,300
164 Accumulated depreciation—Office equipment $ 0
167 Computer equipment 22,400
168 Accumulated depreciation—Computer equipment 0
201 Accounts payable 0
210 Wages payable 0
236 Unearned computer services revenue 0
307 Common stock 66,000
318 Retained earnings 0
319 Dividends 5,700
403 Computer services revenue 35,779
612 Depreciation expense—Office equipment 0
613 Depreciation expense—Computer equipment 0
623 Wages expense 2,325
637 Insurance expense 0
640 Rent expense 0
652 Computer supplies expense 0
655 Advertising expense 1,708
676 Mileage expense 654
677 Miscellaneous expenses 220
684 Repairs expense—Computer 705
Totals $ 101,779 $ 101,779

Business Solutions had the following transactions and events in December 2016.

Dec. 2 Paid $950 cash to Hillside Mall for Business Solutions’s share of mall advertising costs.
3 Paid $440 cash for minor repairs to the company’s computer.
4 Received $4,550 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 $105 per day.
14 Notified by Alex’s Engineering Co. that Business Solutions’s bid of $7,100 on a proposed project has been accepted. Alex’s paid a $2,500 cash advance to Business Solutions.
15 Purchased $1,400 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 $6,525 cash.
22–26 Took the week off for the holidays.
28 Received $3,400 cash from Gomez Co. on its receivable.
29 Reimbursed S. Rey for business automobile mileage (600 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:

The December 31 inventory count of computer supplies shows $590 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 $105 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.

5. Prepare a statement of retained earnings equity for the three months ended December 31, 2016.

6. Prepare a balance sheet as of December 31, 2016.

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.)

a) Record the entry to close the revenue account.
b)Record the entry to close the expense accounts.
c)Record the entry to close the income summary account.
d)Record the entry to close the dividends accounts.
8. Prepare a post-closing trial balance as of December 31, 2016.
9) Prepare the required unadjusted trial balance dated December 31, 2016
Business Solutions Unadjusted Trial Balance December 31, 2016

10) Analyze your results
For Business Solutions calculate and define the following four ratios for 12/31/2016.
Use the amounts from the financial statements
a. Return on assets (for beginning total assets use total assets use the initial investment to Common Stock for the start-up period only)
b. Debt ratio c. Profit margin ratio (Use Computer Services Revenue as Net Sales) d. Current ratio

Answer 1

Business Solution
Adjusted Trial Balance
Dec 31, 2016
Accounts Title	Debits	Credits
Cash	52,227.00
Accounts Receivable	4,968.00
Computer Supplies	590.00
Prepaid Insurance	1,620.00
Prepaid Rent	820.00
Office Equipment	8,300.00
Accumulated Dep.- Equipment		415.00
Computer Equipment	22,400.00
Accumulated Dep.- Computer Equipment		1,400.00
Accounts Payable		1,400.00
Wages Payable		420.00
Unearned Computer Service Revenue		2,500.00
Common Stock		66,000.00
Dividends	7,000.00
Computer Service Revenue		42,304.00
Dep. Exp. - Office Equipment	415.00
Dep. Exp. - Computer Equipment	1,400.00
Wages Expense	3,375.00
Insurance Expense	540.00
Rent Expense	2,460.00
Computer Supplies Expense	3,455.00
Advertising Expense	2,658.00
Mileage Expense	846.00
Misc. Expense	220.00
Repair Expense - Computer	1,145.00
Total	114,439.00	114,439.00
		-
Answer 4.
Business Solution
Income Statement
For Three Months Ended Dec 31, 2016
Revenues:
Computer Service Revenue		42,304.00
Expenses
Dep. Exp. - Office Equipment	415.00
Dep. Exp. - Computer Equipment	1,400.00
Wages Expense	3,375.00
Insurance Expense	540.00
Rent Expense	2,460.00
Computer Supplies Expense	3,455.00
Advertising Expense	2,658.00
Mileage Expense	846.00
Misc. Expense	220.00
Repair Expense - Computer	1,145.00
Total Expenses		16,514.00
Net Income (Loss)		25,790.00
Answer 5.
Business Solution
Statement of Retained Earnings
For Three Months Ended Dec 31, 2016
Beginning Balance	-
Net Income (Loss)	25,790.00
Sub-total	25,790.00
Dividends	(7,000.00)
Ending Balance - Dec 31, 2016	18,790.00
Answer 6.
Business Solution
Balance Sheet
Dec 31, 2016
Assets
Current Assets
Cash		52,227.00
Accounts Receivable		4,968.00
Computer Supplies		590.00
Prepaid Insurance		1,620.00
Prepaid Rent		820.00
Total Current Assets			60,225.00
Property, Plant & Equipment
Office Equipment	8,300.00
Accumulated Dep.- Equipment	(415.00)	7,885.00
Computer Equipment	22,400.00
Accumulated Dep.- Computer Equipment	(1,400.00)	21,000.00
Total Property, Plant & Equipment			28,885.00
Total Assets			89,110.00
Liabilities & Owners' Equity
Liabilities
Current Liabilities
Accounts Payable		1,400.00
Wages Payable		420.00
Unearned Computer Service Revenue		2,500.00
Total Current Liabilities			4,320.00
Long-Term Liabilities			-
Total Liabilities			4,320.00
Total StockHolders' Equity
Common Stock		66,000.00
Retained Earnings		18,790.00
Total Stockholders' Equity			84,790.00
Total Liabilities & Stockholders' Equity			89,110.00

Answer 7.
Closing Journal Entry
Date	Particulars	Dr. Amt.	Cr. Amt
a.	Computer Service Revenue	42,304.00
	Income Summary
	(Record to close the revenue accounts)
b.	Income Summary	16,514.00
	Dep. Exp. - Office Equipment		415.00
	Dep. Exp. - Computer Equipment		1,400.00
	Wages Expense		3,375.00
	Insurance Expense		540.00
	Rent Expense		2,460.00
	Computer Supplies Expense		3,455.00
	Advertising Expense		2,658.00
	Mileage Expense		846.00
	Misc. Expense		220.00
	Repair Expense - Computer		1,145.00
	(Record to close the expense accounts)
c.	Income Summary	25,790.00
	Retained Earnings		25,790.00
	(Record to close the Income Summary)
d.	Retained Earnings	7,000.00
	Dividends		7,000.00
	(Record the close of dividends)

Answer 8.
Business Solution
Closing Trial Balance
Dec 31, 2016
Accounts Title	Debits	Credits
Cash	52,227.00
Accounts Receivable	4,968.00
Computer Supplies	590.00
Prepaid Insurance	1,620.00
Prepaid Rent	820.00
Office Equipment	8,300.00
Accumulated Dep.- Equipment		415.00
Computer Equipment	22,400.00
Accumulated Dep.- Computer Equipment		1,400.00
Accounts Payable		1,400.00
Wages Payable		420.00
Unearned Computer Service Revenue		2,500.00
Common Stock		66,000.00
Retained Earnings		18,790.00
Total	90,925.00	90,925.00