Question

After the success of the company’s first two months, Santana Rey continues to operate Business Solutions. The November 30, 2017, unadjusted trial balance of Business Solutions (reflecting its transactions for October and November of 2017) follows.

No.	Account Title	Debit			Credit
101	Cash	$	38,964
106	Accounts receivable		12,618
126	Computer supplies		2,545
128	Prepaid insurance		1,860
131	Prepaid rent		3,260
163	Office equipment		8,000
164	Accumulated depreciation—Office equipment				$	0
167	Computer equipment		22,800
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		6,000
403	Computer services revenue					35,624
612	Depreciation expense—Office equipment		0
613	Depreciation expense—Computer equipment		0
623	Wages expense		2,250
637	Insurance expense		0
640	Rent expense		0
652	Computer supplies expense		0
655	Advertising expense		1,708
676	Mileage expense		624
677	Miscellaneous expenses		220
684	Repairs expense—Computer		775
	Totals	$	101,624		$	101,624

Business Solutions had the following transactions and events in December 2017.   

Dec.	2		Paid $1,015 cash to Hillside Mall for Business Solutions’ share of mall advertising costs.
	3		Paid $450 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 $105 per day.
	14		Notified by Alex’s Engineering Co. that Business Solutions’ bid of $7,800 on a proposed project has been accepted. Alex’s paid a $1,900 cash advance to Business Solutions.
	15		Purchased $1,800 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 $6,025 cash.
	22–26		Took the week off for the holidays.
	28		Received $3,800 cash from Gomez Co. on its receivable.
	29		Reimbursed S. Rey for business automobile mileage (400 miles at $0.30 per mile).
	31		The company paid $1,100 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 $640 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.

Required:
1. Prepare journal entries to record each of the December transactions and events for Business Solutions.
2-a. Prepare adjusting entries to reflect a through f.
2-b. Post the journal entries to record each of the December transactions, adjusting entries to the accounts in the ledger.
3. Prepare an adjusted trial balance as of December 31, 2017.
4. Prepare an income statement for the three months ended December 31, 2017.
5. Prepare a statement of retained earnings for the three months ended December 31, 2017.
6. Prepare a balance sheet as of December 31, 2017.
7. Record and post the necessary closing entries as of December 31, 2017.
8. Prepare a post-closing trial balance as of December 31, 2017.

Answer 1

1) Journal Entries for recording December Transactions:

Date	Account Title	Debit($)	Credit($)
02.12.2017	Advertising Expense	1015
	Cash		1015
03.12.2017	Repair Expense - Computer	450
	Cash		450
04.12.2017	Cash	3950
	Accounts Receivable		3950
10.12.2017	Wages Expense	630
	Cash		630
14.12.2017	Cash	1900
	Unearned Computer Service Revenue		1900
15.12.2017	Computer Supplies	1800
	Accounts payable		1800
20.12.2017	Cash	6025
	Computer Service Revenue		6025
28.12.2017	Cash	3800
	Accounts Receivable		3800
29.12.2017	Mileage Expense	120
	Cash		120
31.12.2017	Dividend	1100
	Cash		1100
Adjusting Entries for year ended 31.12.2017
Date	Account Title	Debit($)	Credit($)
31.12.2017	Insurance Expense	465
	Prepaid Insurance(1860/4)		465
31.12.2017	Wages Expense	420
	Wages Payable		420
31.12.2017	Depreciation expense—Computer equipment	1425
	Accumulated depreciation—Computer equipment		1425
	(22800/16)
31.12.2017	Depreciation expense—Office equipment	400
	Accumulated depreciation—Office equipment		400
	(8000/20)
31.12.2017	Rent expense	2445
	Prepaid rent(3260*3/4)		2445

Adjusted Trial Balance for year ended 31.12.2017
Account Title	Debit($)	Credit($)
Cash	51,324
Accounts receivable	4,868
Computer supplies	640
Prepaid insurance	1,395
Prepaid rent	815
Office equipment	8000
Computer equipment	22800
Dividend	7100
Depreciation expense—Office equipment	400
Depreciation expense—Computer equipment	1425
Wages expense	3,300
Insurance expense	465
Rent expense	2445
Computer supplies expense	3705
Advertising expense	2,723
Mileage expense	744
Miscellaneous expenses	220
Repairs expense—Computer	1225
Accumulated depreciation—Office equipment		400
Accumulated depreciation—Computer equipment		1425
Accounts payable		1800
Wages payable		420
Unearned computer services revenue		1900
Common stock		66,000
Retained earnings		0
Computer Service Revenue		41649
Totals	1,13,594	1,13,594

Income Statement for 3 month ended 31.12.2017
Particulars	Expense($)	Particulars	Income($)
Opening Computer Supplies	2545	Computer Service Revenue	41649
Dividend	7100	Closing Computer Supplies	640
Depreciation expense—Office equipment	400
Depreciation expense—Computer equipment	1425
Wages expense	3,300
Insurance expense	465
Rent expense	2445
Computer supplies expense(2545+1800-640)	1800
Advertising expense	2,723
Mileage expense	744
Miscellaneous expenses	220
Repairs expense—Computer	1225
Transfer to Retained Earnings	17897
Total	42289	Total	42289

Balance Sheet as on 31.12.2017
Particulars	Liabilities($)	Particulars	Asset($)
Accounts payable	1800	Cash	51,324
Wages payable	420	Accounts receivable	4,868
Unearned computer services revenue	1900	Computer supplies	640
Common stock	66000	Prepaid insurance	1,395
Retained earnings	17897	Prepaid rent	815
		Office equipment	8000
		Less:Acc.depreciation—Office equipment	-400
		Computer equipment	22800
		Less:Acc.depreciation—Computer equipment	-1425
Total	88017		88017