SP 3 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 Chapter 2 serial problem.) 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 $38,264
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

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318 Retained earnings 0
319 Dividends 5,600

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403 Computer services revenue 25,659
612 Depreciation expense—Office equipment 0

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613 Depreciation expense—Computer equipment 0
623 Wages expense rs e 2,625
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637 Insurance expense 0
640 Rent expense 0
652 Computer supplies expense 0
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655 Advertising expense 1,728

aC s

676 Mileage expense 704

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677 Miscellaneous expenses 250

684 Repairs expense—Computer 805
Totals $98,659 $98,659
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Business Solutions had the following transactions and events in December 2017.
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Dec. 2 Paid $1,025 cash to Hillside Mall for Business Solutions’s share of mall advertising costs.
3 Paid $500 cash for minor repairs to the company’s computer.
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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’s bid of $7,000 on a proposed
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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.

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 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 have expired.

Required
1. Prepare journal entries to record each of the December transactions and events for Business Solutions.
Post those entries to the accounts in the ledger.
Date Account Titles and Explanations P.R. Debit (Dr.) $ Credit (Cr.) $
Advertising Expense 1,025
Dec. 2
Cash 1,025
Repairs Expense – Computer 500

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3

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Cash 500

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Cash 3,950
4

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Accounts Receivable 3,950

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Wages Expense 750
10
Cash
rs e 750
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14 No Journal Entry
Computer Supplies 1,100
15
Accounts Payable 1,100
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16 No Journal Entry
aC s

Cash 5,625
20
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Computer Services Revenue 5,625

22-26 No Journal Entry
Cash 3,000
28
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Accounts Receivable 3,000

Mileage Expense 192
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29
Cash 192
Dividends 1,500
31
Cash 1,500
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2. Prepare adjusting entries to reflect a through f. Post those entries to the accounts in the ledger.
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Date Account Titles and Explanations P.R. Debit (Dr.) $ Credit (Cr.) $
Computer Supplies Expense 3,045
a
Computer Supplies 3,045
Insurance Expense 550
b
Prepaid Insurance 550
Wages Expense 500
c
Wages Payable 500

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 Depreciation Expense – Computer Equipment 1,250
d
Accumulated Depreciation – Computer Equipment 1,250
Depreciation Expense – Office Equipment 400
e
Accumulated Depreciation – Office Equipment 400
Rent Expense 2,475
f
Prepaid Rent 2,475

3. Prepare an adjusted trial balance as of December 31, 2017.

Check (3) Adjusted trial balance totals, $109,034
BUSINESS SOLUTIONS
Adjusted Trial Balance
December 31, 2015
Account Title Debit Credit
Cash 48,372
Accounts receivable 5,668

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Computer supplies 580

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Prepaid insurance 1,665

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Prepaid rent 825
Office equipment rs e 8,000
ou urc
Accumulated depreciation—Office equipment 400
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Computer equipment 20,000

aC s

Accumulated depreciation—Computer equipment 1,250

vi y re

Accounts payable 1,100

Wages payable 500
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Unearned computer services revenue 1,500

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Common stock 73,000

Retained earnings 0
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Dividends 7,100
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Computer services revenue 31,284

Depreciation expense—Office equipment 400
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Depreciation expense—Computer equipment 1,250

Wages expense 3,875
Insurance expense 555
Rent expense 2,475
Computer supplies expense 3,065
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 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, 2017.
BUSINESS SOLUTIONS
Income Statement
For Three Months Ended December 31, 2015
Revenue
Computer services revenue $31,284

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Expenses

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Depreciation expense—Office equipment $400

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Depreciation expense—Computer equipment 1,250

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Wages expense 3,875
rs e
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Insurance expense 555
Rent expense 2,475
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Computer supplies expense 3,065

aC s
vi y re

Advertising expense 2,753

Mileage expense 896
Miscellaneous expenses 250
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Repairs expense—Computer 1,305

Total expenses 16,824
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Net income $14,460

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5. Prepare a statement of retained earnings for the three months ended December 31, 2017.
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 BUSINESS SOLUTIONS
Statement of Retained Earnings
For Three Months Ended December 31, 2015
Retained earnings, October 1, 2015
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, 2017.

(6) Total assets, $83,460
BUSINESS SOLUTIONS

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Balance Sheet

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December 31, 2015

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Assets

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Cash
rs e $48,372
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Accounts receivable 5,668
Computer supplies 580
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Prepaid insurance 1,665

aC s
vi y re

Prepaid rent 825

Office equipment $8,000
Accumulated depreciation—Office equipment (400) 7,600
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Computer equipment 20,000

Accumulated depreciation—Computer equipment (1,250) 18,750
Total Assets 83,460
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Liabilities
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Accounts payable $1,100

Wages payable 500
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Unearned computer services revenue 1,500

Total Liabilities 3,100
Equity
Common stock 73,000
Retained earnings 7,360
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 Total equity 80,360
Total Liabilities and Equity $83,460

7. Record and post the necessary closing entries as of December 31, 2017.
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

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Computer supplies expense 3,065

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Advertising expense 2,753

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Mileage expense 896

o.
Miscellaneous expenses 250
Repairs expense—Computer rs e 1,305
ou urc
Dec 31 Income summary 14,460
Retained earnings 14,460
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Dec 31 Retained earnings 7,100

aC s

Dividends 7,100
vi y re

8. Prepare a post-closing trial balance as of December 31, 2017.

ed d

(8) Post-closing trial balance totals, $85,110

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 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

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Accumulated depreciation—Computer equipment 1,250

co
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Accounts payable 1,100

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Wages payable 500
rs e
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Unearned computer services revenue 1,500
Common stock 73,000
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Retained earnings 7,360

aC s

Totals $85,110 $85,110

vi y re
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