Question

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. Also, Business Solutions does not use reversing entries and, therefore, all revenue and expense accounts have zero beginning balances as of January 1, 2018. Its transactions for January through March follow:

Jan. 4 The company paid cash to Lyn Addie for five days’ work at the rate of $175 per day. Four of the five days relate to wages payable that were accrued in the prior year.
5 Santana Rey invested an additional $25,000 cash in the company.
7 The company purchased $6,600 of merchandise from Kansas Corp. with terms of 1/10, n/30, FOB shipping point, invoice dated January 7.
9 The company received $2,688 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 $5,470, which is the total price of $6,820 less the advance payment of $1,350.
13 The company sold merchandise with a retail value of $4,400 and a cost of $3,510 to Liu Corp., invoice dated January 13.
15 The company paid $710 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 Liu Corp. returned $700 of defective merchandise from its invoice dated January 13. The returned merchandise, which had a $280 cost, is discarded. (The policy of Business Solutions is to leave the cost of defective products in cost of goods sold.)
22 The company received the balance due from Liu Corp., net of both the discount and the credit for the returned merchandise.
24 The company returned defective merchandise to Kansas Corp. and accepted a credit against future purchases. The defective merchandise invoice cost, net of the discount, was $486.
26 The company purchased $10,000 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 $4,600 cost for $5,810 on credit to KC, Inc., invoice dated January 26.
31 The company paid cash to Lyn Addie for 10 days’ work at $175 per day.
Feb. 1 The company paid $2,565 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 amount in the credit memorandum.
5 The company paid $410 cash to the local newspaper for an advertising insert in today’s paper.
11 The company received the balance due from Alex’s Engineering Co. for fees billed on January 11.
15 Santana Rey withdrew $4,750 cash from the company for personal use.
23 The company sold merchandise with a $2,550 cost for $3,410 on credit to Delta Co., invoice dated February 23.
26 The company paid cash to Lyn Addie for eight days’ work at $175 per day.
27 The company reimbursed Santana Rey for business automobile mileage (1,000 miles at $0.32 per mile).
Mar. 8 The company purchased $2,850 of computer supplies from Harris Office Products on credit, invoice dated March 8.
9 The company received the balance due from Delta Co. for merchandise sold on February 23.
11 The company paid $860 cash for minor repairs to the company’s computer.
16 The company received $5,260 cash from Dream, Inc., for computing services provided.
19 The company paid the full amount due to Harris Office Products, consisting of amounts created on December 15 (of $1,130) and March 8.
24 The company billed Easy Leasing for $9,157 of computing services provided.
25 The company sold merchandise with a $2,102 cost for $2,870 on credit to Wildcat Services, invoice dated March 25.
30 The company sold merchandise with a $1,048 cost for $2,360 on credit to IFM Company, invoice dated March 30.
31 The company reimbursed Santana Rey for business automobile mileage (300 miles at $0.32 per mile).

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

The March 31 amount of computer supplies still available totals $2,205.
Three more months have expired since the company purchased its annual insurance policy at a $2,472 cost for 12 months of coverage.
Lyn Addie has not been paid for seven days of work at the rate of $175 per day.
Three months have passed since any prepaid rent has been transferred to expense. The monthly rent expense is $855.
Depreciation on the computer equipment for January 1 through March 31 is $1,060.
Depreciation on the office equipment for January 1 through March 31 is $400.
The March 31 amount of merchandise inventory still available totals $594.

Required:

1. Prepare journal entries to record each of the January through March transactions.

Answer 1

Jan 4 Wage Payable A/c     Dr.    700

            Wage A/c                    Dr.   175

                         To Cash A/c                        875

Jan 5 Cash A/c                        Dr.    25000

                        To Capital A/c                        25000

Jan 7 Purchase A/c              Dr.    6600

                       To Kansas Corp                    6600

Jan 9 Cash A/c                     Dr. 2688

                        To Gomez Co.                     2688

Jan 11 Alex’s Engineering Co. A/c Dr. 5470

            Advance Payment                 Dr. 1350

                           To Sale - Service                        6820

Jan 13 Liu Corp A/c                         Dr.   4400

                           To Sale                                         4400

Jan 15 Kansas Corp A/c                 Dr. 700

                  To Cash                                             700

(Being freight charges paid on behalf of Kansas Corp as Purchase terms are FOB shipment)

Jan 16 Cash A/c                              Dr. 4180

                     To Delta Co.                                  4180

Jan 17 Kansas Corp A/c                 Dr. 5240

                      To Cash A/c                                  5240

(Being payment made to Kansas Corp net of 1% discount as payment made within 10 days & freight charges)

Jan 20 Sales Return A/c               Dr. 700

                       To Liu Corp                               700

Jan 22 Cash A/c                           Dr. 3700

                        To Liu Corp                              3700

Jan 24 Kansas Corp A/c              Dr. 486

                        To Purchase Return               486

Jan 26 Purchase A/c                   Dr. 10000

                        To Kansas Corp                       10000

Jan 26 KC Inc. A/c                       Dr. 5810

                        To Sale                                    5810

Jan 31 Wage A/c                        Dr. 1750

                        To Cash A/c                           1750

Feb 1 Prepaid Rent A/c            Dr. 2565

                        To Cash A/c                            2565

Feb 3 Kansas Corp A/c             Dr. 8514

                        To Cash A/c                           8514

Feb 5 Advertising Expense A/c   Dr. 410

                          To Cash A/c                             410

Feb 11 Cash A/c                        Dr. 5470

                          To Alex Engineering Co.        5470

Feb 15 Drawings A/c                Dr. 4750

                          To Cash A/c                          4750

Feb 23 Delta Co. A/c               Dr. 3410

                           To Sale A/c                         3410

Feb 26 Wage A/c                      Dr. 1400

                           To Cash                               1400

Feb 27 Automobile Expense A/c   Dr. 320

                                   To Cash                              320

Mar 8 Purchase A/c                         Dr. 2850

                                  To Harris Office                 2850

Mar 9 Cash A/c                                Dr. 3410

                             To Delta Co.                            3410

Mar 11 Repair & Maintenance A/c   Dr. 860

                                           To Cash A/c                  860

Mar 16 Cash A/c                             Dr. 5260

                               To Dream Inc.                         5260

Mar 19 Harris Office A/c               Dr. 3980

                               To Cash A/c                           3980

Mar 24 Easy Leasing A/c               Dr. 9157

                               To Sale – Service                  9157

Mar 25 Wildcat Services A/c         Dr. 2870

                               To Sale                                   2870

Mar 30 IFM Company A/c              Dr. 2360

                              To Sale                                   2360

Mar 31 Automobile Expense A/c   Dr. 96

                                   To Cash                              96

CLOSING ADJUSTMENT ENTRIES

• Insurance Expense A/c     Dr. 618

                                   To Prepaid Insurance      618

• Wage A/c                                   Dr. 1225

                                  To Wage Payable                         1225

• Rent Expense A/c                      Dr. 2565

                                 To Prepaid Rent                          2565

• Depreciation Expense A/C    Dr. 1460

                                 To Accumulated Dep – Computer Equipment        1060

                                 To Accumulated Dep – Office Equipment                 400