Question

Santana Rey created Business Solutions on October 1, 2019. 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, 2019. 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.

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 $205 per day. Four of the five days relate to wages payable that were accrued in the prior year.
		5		Santana Rey invested an additional $23,600 cash in the company in exchange for more common stock.
		7		The company purchased $5,900 of merchandise from Kansas Corp. with terms of 1/10, n/30, FOB shipping point, invoice dated January 7.
		9		The company received $2,788 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 $5,450, which is the total price of $6,840 less the advance payment of $1,390. The company debited Unearned Computer Services Revenue for $1,390.
		13		The company sold merchandise with a retail value of $4,100 and a cost of $3,440 to Liu Corp., invoice dated January 13.
		15		The company paid $700 cash for freight charges on the merchandise purchased on January 7.
		16		The company received $4,180 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 $600 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 $9,400 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 $4,560 cost for $5,970 on credit to KC, Inc., invoice dated January 26.
		31		The company paid cash to Lyn Addie for 10 days’ work at $205 per day.
Feb.		1		The company paid $2,535 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 $550 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 $4,790 cash dividend.
		23		The company sold merchandise with a $2,470 cost for $3,280 on credit to Delta Co., invoice dated February 23.
		26		The company paid cash to Lyn Addie for eight days’ work at $205 per day.
		27		The company reimbursed Santana Rey $224 cash for business automobile mileage. The company recorded the reimbursement as "Mileage Expense."
Mar.		8		The company purchased $2,760 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 $910 cash for minor repairs to the company’s computer.
		16		The company received $5,270 cash from Dream, Inc., for computing services provided.
		19		The company paid the full amount due of $4,010 to Harris Office Products, consisting of amounts created on December 15 (of $1,250) and March 8.
		24		The company billed Easy Leasing for $9,197 of computing services provided.
		25		The company sold merchandise with a $2,042 cost for $2,960 on credit to Wildcat Services, invoice dated March 25.
		30		The company sold merchandise with a $1,078 cost for $2,240 on credit to IFM Company, invoice dated March 30.
		31		The company reimbursed Santana Rey $256 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 $2,145.
2. Prepaid Insurance coverage of $663 expired during this 3-month period.
3. Lyn Addie has not been paid for seven days of work at the rate of $205 per day.
4. Prepaid rent of $2,535 expired during this 3-month period.
5. Depreciation on the computer equipment for January 1 through March 31 is $1,080.
6. Depreciation on the office equipment for January 1 through March 31 is $240.

The March 31 amount of merchandise inventory still available totals $564

1- Post the journal entries in part 1 to the accounts in the company’s general ledger. Note: Begin with the ledger’s post-closing adjusted balances as of December 31, 2019.------- Prepare a 6-column work sheet that includes the unadjusted trial balance, the March 31 adjustments (a) through (g), and the adjusted trial balance. Do not prepare closing entries and do not journalize the adjustments or post them to the ledger. ---------Prepare an income statement (from the adjusted trial balance in part 3) for the three months ended March 31, 2020. (a) Use a single-step format. List all expenses without differentiating between selling expenses and general and administrative expenses. (b) Use a multiple-step format that begins with gross sales (service revenues plus gross product sales) and includes separate categories for net sales, cost of goods sold, selling expenses, and general and administrative expenses. Categorize the following accounts as selling expenses: Wages Expense, Mileage Expense, and Advertising Expense. Categorize the remaining expenses as general and administrative. --------Prepare a statement of retained earnings (from the adjusted trial balance in part 3) for the three months ended March 31, 2020. ----------Prepare a classified balance sheet (from the adjusted trial balance) as of March 31, 2020.

Answer 1