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.

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

9.

BUSINESS SOLUTIONS
Trial Balance as at December 31, 2017
		Unadjusted
	Account	Debit	Credit
101	Cash	52227
106	Acounts receivable	4968
126	Computer supplies	4045
128	Prepaid insurance	2160
131	Prepaid rent	3280
163	Office equipment	8300
164	Accumulated depreciation - office equipment		0
167	Computer equipment	22400
168	Accumulated depreciation - Computer equipment		0
201	Accounts payable		1400
210	Wages payable		0
236	Unearned computer service revenue		2500
301	Common Stock		66000
302	Dividends	7000
403	Computer service revenue		42304
612	Depreciation expense - office equipment	0
613	Depreciation expense - computer equipment	0
623	Wages expense	2955
637	Insurance expense	0
640	Rent expense	0
652	Computer supplies expense	0
655	Advertising expense	2658
676	Mileage expense	846
677	Miscellaneous expense	220
684	Repair expense - computer equipment	1145
		112204	112204

10.

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

BUSINESS SOLUTIONS
Income statement for the three months ended December,31 2017
Details	$	$
Computer service revenue		42304
Less: Expenses
Computer supplies expense	3455
Wages expense	3375
Rent expense	2235
Advertising expense	2658
Depreciation expense - computer equipment	1400
Depreciation expense - office equipment	415
Repair expense - computer equipment	1145
Mileage expense	846
Insurance expense	540
Miscellaneous expense	220
Total Expenses		16289
Net Income		26015
BUSINESS SOLUTIONS
Statement of stockholders' equity as at December,31 2016
Common stock		66000
Retaned earnings
Balance as at January 1 , 2016	0
Add: net income for the year	26015
Less: dividends	1300
Balance as at Deceber 31, 2016		24715
Stockholders' equity		90715
BUSINESS SOLUTIONS
Balance Sheet as at December,31 2017
Assets
Cash		52227
Acounts receivable		4968
Computer supplies		590
Prepaid insurance		1620
Prepaid rent		1045
Current Assets		60450
Office equipment	8300
Less: Accumulated depreciation	415	7885
Computer equipment	22400
Less: Accumulated depreciation	1400	21000
Total Assets		89335
Liabilities & Equity
Accounts payable		1400
Wages payable		420
Unearned computer service revenue		2500
Total liabilities		4320
Stockholders' equity
Common stock		66000
Retained earnings	0
Add: Net income for the year	26015
Less: Dividends	7000
Ending balance		19015
Total Liabilities & Equity		89335