Ass 3+

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, 2015, unadjusted trial balance of Business Solutions (reflecting its transactions for October and November of 2015) follows.

No.	Account Title	Debit			Credit
101	Cash	$	38,264
106	Accounts receivable		12,618
126	Computer supplies		2,545
128	Prepaid insurance		2,220
131	Prepaid rent		3,300
163	Office equipment		8,000
164	Accumulated depreciation—Office equipment				$	0
167	Computer equipment		20,000
168	Accumulated depreciation—Computer equipment					0
201	Accounts payable					0
210	Wages payable					0
236	Unearned computer services revenue					0
307	Common stock					73,000
307	Retained earnings					0
319	Dividends		5,600
403	Computer services revenue					25,659
612	Depreciation expense—Office equipment		0
613	Depreciation expense—Computer equipment		0
623	Wages expense		2,625
637	Insurance expense		0
640	Rent expense		0
652	Computer supplies expense		0
655	Advertising expense		1,728
676	Mileage expense		704
677	Miscellaneous expenses		250
684	Repairs expense—Computer		805
	Totals	$	98,659		$	98,659

Business Solutions had the following transactions and events in December 2015.

   

Dec.	2	Paid $1,025 cash to Hillside Mall for Business Solutions’ share of mall advertising costs.
	3	Paid $500 cash for minor repairs to the company’s computer.
	4	Received $3,950 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 $125 per day.
	14	Notified by Alex’s Engineering Co. that Business Solutions’ bid of $7,000 on a proposed project   has been accepted. Alex’s paid a $1,500 cash advance to Business Solutions.
	15	Purchased $1,100 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 $5,625 cash.
22–26		Took the week off for the holidays.
	28	Received $3,000 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 $1,500 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:

a.	The December 31 inventory count of computer supplies shows $580 still available.
b.	Three months have expired since the 12-month insurance premium was paid in advance.
c.	As of December 31, Lyn Addie has not been paid for four days of work at $125 per day.
d.	The computer system, acquired on October 1, is expected to have a four-year life with no salvage value.
e.	The office equipment, acquired on October 1, is expected to have a five-year life with no salvage value.
f.	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.(If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.)

Date	General Journal	Debit	Credit
Dec 02	Advertising expense	1,025
	Cash		1,025
Dec 03	Repairs expense—Computer	500
	Cash		500
Dec 04	Cash	3,950
	Accounts receivable		3,950
Dec 10	Wages expense	750
	Cash		750
Dec 14	Cash	1,500
	Unearned computer services revenue		1,500
Dec 15	Computer supplies	1,100
	Accounts payable		1,100
Dec 16	No journal entry required
Dec 20	Cash	5,625
	Computer services revenue		5,625
Dec 28	Cash	3,000
	Accounts receivable		3,000
Dec 29	Mileage expense	192
	Cash		192
Dec 31	Dividends	1,500
	Cash		1,500

2.1	Prepare adjusting entries to reflect a through f.

Transaction	General Journal	Debit	Credit
a.	Computer supplies expense	3,065
	Computer supplies		3,065
b.	Insurance expense	555
	Prepaid insurance		555
c.	Wages expense	500
	Wages payable		500
d.	Depreciation expense—Computer equipment	1,250
	Accumulated depreciation—Computer equipment		1,250
e.	Depreciation expense—Office equipment	400
	Accumulated depreciation—Office equipment		400
f.	Rent expense	2,475
	Prepaid rent		2,475

2.2	Post the journal entries to record each of the December transactions, adjusting entries to the accounts in the ledger.

General Ledger Accounts

Cash Accounts Receivable Date Debit Credit Balance Date Debit Credit Balance Dec. 01 38,264 Dec. 01 12,618 Dec. 02 1,025 37,239 Dec. 04 3,950 8,668 Dec. 03 500 36,739 Dec. 28 3,000 5,668 Dec. 04 3,950 40,689 Dec. 10 750 39,939 Dec. 14 1,500 41,439 Dec. 20 5,625 47,064 Dec. 28 3,000 50,064 Dec. 29 192 49,872 Dec. 31 1,500 48,372 Computer Supplies Prepaid Insurance Date Debit Credit Balance Date Debit Credit Balance Dec. 01 2,545 Dec. 01 2,220 Dec. 15 1,100 3,645 Dec. 31 555 1,665 Dec. 31 3,065 580 Prepaid Rent Office Equipment Date Debit Credit Balance Date Debit Credit Balance Dec. 01 3,300 Dec. 01 8,000 Dec. 31 2,475 825 Accumulated Depreciation—Office Equipment Computer Equipment Date Debit Credit Balance Date Debit Credit Balance Dec. 01 0 Dec. 01 20,000 Dec. 31 400 400 Accumulated Depreciation—Computer Equipment Accounts Payable Date Debit Credit Balance Date Debit Credit Balance Dec. 01 0 Dec. 01 0 Dec. 31 1,250 1,250 Dec. 15 1,100 1,100 Wages Payable Unearned Computer Services Revenue Date Debit Credit Balance Date Debit Credit Balance Dec. 01 0 Dec. 01 0 Dec. 31 500 500 Dec. 14 1,500 1,500 Common Stock Retained Earnings Date Debit Credit Balance Date Debit Credit Balance Dec. 01 73,000 Dec. 01 Dec. 31 14,460 14,460 Dec. 31 7,100 7,360 Dividends Computer Services Revenue Date Debit Credit Balance Date Debit Credit Balance Dec. 01 5,600 Dec. 01 25,659 Dec. 20 1,500 7,100 Dec. 31 5,625 31,284 Dec. 31 7,100 0 Dec. 31 31,284 0 Depreciation Expense—Computer Equipment Depreciation Expense—Office Equipment Date Debit Credit Balance Date Debit Credit Balance Dec. 01 0 Dec. 01 0 Dec. 31 1,250 1,250 Dec. 10 400 400 Dec. 31 1,250 0 Dec. 31 400 0 Insurance Expense Rent Expense Date Debit Credit Balance Date Debit Credit Balance Dec. 01 0 Dec. 01 0 Dec. 31 555 555 Dec. 31 2,475 2,475 Dec. 31 555 0 Dec. 31 2,475 0 Computer Supplies Expense Advertising Expense Date Debit Credit Balance Date Debit Credit Balance Dec. 01 0 Dec. 01 1,728 Dec. 31 3,065 3,065 Dec. 02 1,025 2,753 Dec. 31 3,065 0 Dec. 31 2,753 0 Mileage Expense Miscellaneous Expenses Date Debit Credit Balance Date Debit Credit Balance Dec. 01 704 Dec. 01 250 Dec. 29 192 896 Dec. 31 250 0 Dec. 31 896 0 Repairs Expense — Computer Wages Expense Date Debit Credit Balance Date Debit Credit Balance Dec. 01 805 Dec. 01 2,625 Dec. 03 500 1,305 Dec. 31 750 3,375 Dec. 31 1,305 0 Dec. 31 500 3,875 Dec. 31 3,875 0 Income Summary Date Debit Credit Balance Dec. 01 0 Dec. 31 31,284 31,284 Dec. 31 16,824 14,460 Dec. 31 14,460 0

3.	Prepare an adjusted trial balance as of December 31, 2015.

BUSINESS SOLUTIONS Adjusted Trial Balance December 31, 2015 Account Title Debit Credit Cash 48,372 Accounts receivable 5,668 Computer supplies 580 Prepaid insurance 1,665 Prepaid rent 825 Office equipment 8,000 Accumulated depreciation—Office equipment 400 Computer equipment 20,000 Accumulated depreciation—Computer equipment 1,250 Accounts payable 1,100 Wages payable 500 Unearned computer services revenue 1,500 Common stock 73,000 Retained earnings 0 Dividends 7,100 Computer services revenue 31,284 Depreciation expense—Office equipment 400 Depreciation expense—Computer equipment 1,250 Wages expense 3,875 Insurance expense 555 Rent expense 2,475 Computer supplies expense 3,065 Advertising expense 2,753 Mileage expense 896 Miscellaneous expenses 250 Repairs expense—Computer 1,305 Totals $109,034 $109,034

4.	Prepare an income statement for the three months ended December 31, 2015.

BUSINESS SOLUTIONS Income Statement For Three Months Ended December 31, 2015 Revenue Computer services revenue $31,284 Expenses Depreciation expense—Office equipment $400 Depreciation expense—Computer equipment 1,250 Wages expense 3,875 Insurance expense 555 Rent expense 2,475 Computer supplies expense 3,065 Advertising expense 2,753 Mileage expense 896 Miscellaneous expenses 250 Repairs expense—Computer 1,305 Total expenses 16,824 Net income $14,460

5.	Prepare a statement of owner’s equity for the three months ended December 31, 2015. (Enter all amounts as positive values.)

	BUSINESS SOLUTIONS Statement of Retained Earnings For Three Months Ended December 31, 2015 Retained earnings, October 1, 2015 $0 Add: Net income 14,460 14,460 Less: Dividends 7,100 Retained earnings, December 31, 2015 $7,360

6.	Prepare a balance sheet as of December 31, 2015.

BUSINESS SOLUTIONS Balance Sheet December 31, 2015 Assets Cash $48,372 Accounts receivable 5,668 Computer supplies 580 Prepaid insurance 1,665 Prepaid rent 825 Office equipment $8,000 Accumulated depreciation—Office equipment (400) 7,600 Computer equipment 20,000 Accumulated depreciation—Computer equipment (1,250) 18,750 Total Assets 83,460 Liabilities Accounts payable $1,100 Wages payable 500 Unearned computer services revenue 1,500 Total Liabilities 3,100 Equity Common stock 73,000 Retained earnings 7,360 Total equity 80,360 Total Liabilities and Equity $83,460

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.)

Date	General Journal	Debit	Credit
Dec 31	Computer services revenue	31,284
	Income summary		31,284
Dec 31	Income summary	16,824
	Depreciation expense—Office equipment		400
	Depreciation expense—Computer equipment		1,250
	Wages expense		3,875
	Insurance expense		555
	Rent expense		2,475
	Computer supplies expense		3,065
	Advertising expense		2,753
	Mileage expense		896
	Miscellaneous expenses		250
	Repairs expense—Computer		1,305
Dec 31	Income summary	14,460
	Retained earnings		14,460
Dec 31	Retained earnings	7,100
	Dividends		7,100

8.	Prepare a post-closing trial balance as of December 31, 2015.

BUSINESS SOLUTIONS Post-Closing Trial Balance December 31, 2015 Account Title Debit Credit Cash 48,372 Accounts receivable 5,668 Computer supplies 580 Prepaid insurance 1,665 Prepaid rent 825 Office equipment 8,000 Accumulated depreciation—Office equipment 400 Computer equipment 20,000 Accumulated depreciation—Computer equipment 1,250 Accounts payable 1,100 Wages payable 500 Unearned computer services revenue 1,500 Common stock 73,000 Retained earnings 7,360 Totals $85,110 $85,110

Explanation:

2.1

Dec. 31

Insurance expense = (1/4 of $2,220 original prepaid amount) = $555

Depreciation expense–Computer equipment = $1,250

   

Cost	$	20,000
Predicted life		4	years
Annual depreciation (cost/life)	$	5,000
Expense for three months	$	1,250

    

Depreciation expense–Office equipment = $400

   

Cost	$	8,000
Predicted life		5	years
Annual depreciation (cost/life)	$	1,600
Expense for three months	$	400

Rent expense = (3/4 of $3,300 original prepaid amount) = $2,475