After the success of the company’s first two months, Santana Rey continues to op
ID: 2425806 • Letter: A
Question
After the success of the company’s first two months, Santana Rey continues to operate Business Solutions. (Transactions for the first two months are described in the serial problem of Chapter 2.) 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
236
Unearned computer services revenue
0
301
S. Rey, Capital
73,000
302
S. Rey, Withdrawals
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
S. Rey withdrew $1,500 cash from the company for personal use.
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.
Please complete the following:
Prepare journal entries to record each of the December transactions and events for Business Solutions.Post those entries to the accounts in the ledger.
Prepare adjusting entries to reflect a through f. Post those entries to the accounts in the ledger.
Prepare an adjusted trial balance as of December 31, 2015.
Prepare an income statement for the three months ended December 31, 2015.
Prepare a statement of owner’s equity for the three months ended December 31, 2015.
Prepare a balance sheet as of December 31, 2015.
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
236
Unearned computer services revenue
0
301
S. Rey, Capital
73,000
302
S. Rey, Withdrawals
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
Explanation / Answer
ANSWER A : JOURNAL ENTERIES FOR DECEMBER
Dec02 Advertisement Exp Dr 1025
Cash 1025
Dec 03 Repair expenses-Computer Dr 500
Cash 500
Dec 04 Cash Dr 3950
Accounts Recievable 3950
Dec 10 Wage Expenses Dr 750
cash 750
Dec 14 Cash Dr 1500
Unearned Computer Service Revenue 1500
Dec 15 Computer Supplies Dr 1100
Accounts Payable 1100
Dec 16 [No Entry ]
Dec 20 Cash Dr 5625
Revenue 5625
Dec 22-26 [No Entry]
Dec 28 Cash Dr 3000
Accounts Recievable 3000
Dec 29 Mileage Expenses Dr 192
Cash 192
Dec 31 Withdrawals Dr 1500
Caash 1500
ANSWER B : reflect a through f (the notes below are not part of journal entry, it is for understanding the calculation)
1) Computer Supplies Dr 3065 (Note : 2545+1100-580)
Computer Supplies 3065
2) Insurance Expense Dr 555 (Note: 2220*3/12)
Prepaid Insurance 555
3) Wage Expense Dr 500 (Note : 125*4)
Wages Payable 500
4) Depreciation Expense- ComputerEquipment Dr 1250 (Note: 20000/4 * 3/12)
Accumulated Depreciation- Computer Equipment 1250
5) Rent Expense Dr 2475
Prepaid Rent 2475
ANSWER C: TRIAL BALANCE
ANSWER D ': INCOME STATEMENT
ANSWER E : STATEMENT OF OWNER'S EQUITY
ACCOUNT TITLE DEBIT CREDIT Cash 48372 Accounts Receivable 5668 Computer Supplies 580 Prepaid Insurance 1665 Prepaid Rent 825 Office Equipment 8000 Accumulated Depreciation- Office Equipment 400 Computer Equipment 20000 Accumulated Depreciation- Computer Equipment 1250 Accounts Payable 1100 Wages Payable 500 Unearned Computer Services Revenue 1500 Common Stock 73000 Retained Earnings 0 Computer Services Revenue 31284 Depreciation Exp - Office Equipment 400 Depreciation Exp- Computer Equipment 1250 Wage Expense 3875 Insurance Exp 555 Rent Expense 2475 Computer Supplies Exp 3065 Advertising Exp 2753 Mileage Exp 896 Misc Exp 250 Repair Exp- Computer 1305 Withdrawals 7100 TOTAL 109034 109034