Chapter 3, Problem 3SP

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 30,2019, unadjusted trial balance of Business Solutions (reflecting its transactions for October and November of 2019) follows.

Dec. Paid $1,025 cash to Hillside Mall for Business Solutions's share of mall advertising costs.
2
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's bid of $7,000 on a proposed project has been accepted. Alex's paid a $1,500 cash advance to Business Solutions.
15Purchased $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 $(600\text{miles}\text{at}\$0.32\text{per}\text{mile}).$
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.

1. The December 31 inventory count of computer supplies shows $580 still available.
2. Three months have expired since the 12-month insurance premium was paid in advance.
3. As of December 31, Lyn Addie has not been paid for four days of work at $125 per day.
4. The computer system, acquired on October 1, is expected to have a four-year life with no salvage value.
5. The office equipment, acquired on October 1, is expected to have a five-year life with no salvage value.
6. 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.
2. Prepare adjusting entries to reflect a through f. Post those entries to the accounts in the ledger.
3. Prepare an adjusted trial balance as of December 31, 2019.
4. Prepare an income statement for the three months ended December 31,2019.
5. Prepare a statement of retained earnings for the three months ended December 31, 2019.
6. Prepare a balance sheet as of December 31,2019.
7. Record and post the necessary closing entries as of December 31, 2019.
8. Prepare a post-closing trial balance as of December 31,2019.
   Check (3) Adjusted trial balance totals, $109,034
   (6) Total assets, $83,460
   (8) Post-closing trial balance totals, $85,110

To determine

Adjusting Entries: Adjusting entries are made at the end of the year to adjust the financial position of the enterprise according to accrual basis of accounting.

Accounting rules regarding journal entries:

• Balance increase when: Assets, losses and expenses get debited and liabilities, gains, and revenue get credited.
• Balance decrease when: Assets, losses and expenses get credited and liabilities, gains, and revenue get debited.

Journal Entries: It is a book of original entry. It records and summarizes financial transaction of an entity in chronological manner, generally according to dual aspect of accounting.

Adjusted Trial Balance: It is a statement which contain balances of all account after all the adjusting entries has been made.

Income Statement: It is a financial statement which show the profit and loss made by the firm in a particular accounting period.

Retained Earnings: It is a financial statement which show the amount of profit retained by the company for their future unforeseen events.

Closing entries: These entries is made for those item whose balance need to be zero for next accounting period otherwise data of two accounting periods will get mix with each other.

Balance sheet: It shows the financial position of a firm. It consists of asset and liabilities.

1.

To prepare: Journal entries to record December transaction and posting them to ledger account.

Explanation of Solution

Solution:

Preparing journal entries:

Paid $1,025 for advertising cost:

Date	Account Title and Explanation	Post ref	Debit($)	Credit($)
December 2	Advertising Expense		1,025
	Cash			1,025
	(Being cash paid for advertising expense)

Table (1)

• Advertising Expense is an expense. Since, expense reduces equity, debit advertising expense account.
• Cash is an asset. Since, cash is used to pay expense, asset is reduced. Hence, credit cash account.

Cash paid for minor repairs of the company’s computer:

Date	Account Title and Explanation	Post ref	Debit($)	Credit($)
December 3	Repair Expense		500
	Cash			500
	(Being cash spend on repairs)

Table (2)

• Repair Expense is an expense. Since, expense reduces equity, debit repair expense account.
• Cash is an asset. Since, cash is used to pay expense, asset is reduced. Hence, credit cash account.

Cash received against the accounts receivable of November month:

Date	Account Title and Explanation	Post ref	Debit($)	Credit($)
December 4	Cash		3,950
	Accounts receivable			3,950
	(Being money received against accounts receivable )

Table (3)

• Cash is an asset. Since, cash is received, it increases asset. Hence debit cash account
• Accounts receivable is an asset. Since, money is received, it reduces asset. Hence, credit accounts receivable account.

Paid cash for six days of work:

Date	Account Title and Explanation	Post ref	Debit($)	Credit($)
December 10	Wages Expense		750
	Cash			750
	(Being Wages paid for six days of work)

Table (4)

• Wages Expense is an expense. Since, expense reduces equity, debit wages expense account.
• Cash is an asset. Since, cash is used to pay expense, asset is reduced. Hence, credit cash account.

Working notes:

Calculation of six days of wages,

  $\begin{array}{c}\text{Total}\text{wages}\text{expense}=\text{Number}\text{of}\text{days}\text{worked}\times \text{Daily}\text{wages}\\ =6\times \text{\$125}\\ =\$750\end{array}$

Cash received in advance for a project:

Date	Account Title and Explanation	Post ref	Debit($)	Credit($)
December 14	Cash		1,500
	Unearned computer service revenue			1,500
	(Being money received but not earned yet )

Table (5)

• Cash is an asset. Since, cash is received, it increases asset. Hence debit cash account
• Unearned computer service revenue is a liability. Since, money is received but not earned yet, it increases liability. Hence, credit unearned computer service revenue account.

Purchased computer supplies on credit:

Date	Account Title and Explanation	Post ref	Debit($)	Credit($)
December 15	Computer supplies		1,100
	Accounts payable			1,100
	(Being computer supplies purchased on credit )

Table (6)

• Computer supplies are an asset. Since, computer supplies is purchased, it increases asset. Hence debit computer supplies account.
• Accounts payable is a liability. Since, computer supplies is purchased but not paid yet, it increases liability. Hence, credit accounts payable account.

Sent a reminder to G. Company for payment of fees:

No entry, because it is just a reminder and no quantitative transaction occurred.

Cash received as a payment of a project:

Date	Account Title and Explanation	Post ref	Debit($)	Credit($)
December 20	Cash		5,625
	Computer service revenue			5,625
	(Being money received on completion of a project )

Table (7)

• Cash is an asset. Since, cash is received, it increases asset. Hence debit cash account.
• Computer service revenue is an income. Since, money is received and earned, it increases income. Hence, credit computer service revenue account.

Took the week off for holidays:

No entry, because business was close due to holidays and no quantitative transaction occurred.

Cash received against the accounts receivable:

Date	Account Title and Explanation	Post ref	Debit($)	Credit($)
December 28	Cash		3,000
	Accounts receivable			3,000
	(Being money received against accounts receivable )

Table (8)

• Cash is an asset. Since, cash is received, it increases asset. Hence debit cash account
• Accounts receivable is an asset. Since, money is received, it reduces asset. Hence, credit accounts receivable account.

Reimbursed S.R for business automobile mileage:

Date	Account Title and Explanation	Post ref	Debit($)	Credit($)
December 29	Mileage expense		192
	Cash			192
	(Being dividends paid using cash)

Table (9)

• Mileage expense is an expense. Since, expense reduces equity, debit mileage expense account.
• Cash is an asset. Since, cash is used to pay mileage expense, asset is reduced. Hence, credit cash account.

Working notes:

Calculation of mileage expense,

  $\begin{array}{c}\text{Mileage}\text{expense}=\text{Number}\text{of}\text{miles}\times \text{Rate}\text{per}\text{mile}\\ =600\times \text{\$0}\text{.32}\\ =\$192\end{array}$

Company paid $1,500 cash as dividends:

Date	Account Title and Explanation	Post ref	Debit($)	Credit($)
December 31	Dividends		1,500
	Cash			1,500
	(Being dividends paid using cash)

Table (10)

• Dividend is distributed among shareholders. Since, it reduces equity, debit dividends account
• Cash is an asset. Since, cash is used to pay dividend, asset is reduced. Hence, credit cash account.

Post journal entries to ledger account:

Cash Acct. No. 101
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		38,264		38,264
December 2	Advertising expense			1,025	37,239
December 3	Repairs expense			500	36,739
December 4	Accounts receivable		3,950		40,689
December 10	Salary expense			750	39,939
December 14	Unearned computer service revenue		1,500		41,439
December 20	Computer service revenue		5,625		47,064
December 28	Accounts receivable		3,000		50,064
December 29	Mileage expense			192	49,872
December 31	Dividends			1,500	48,372

Table (11)

The ending balance is $48,372.

Accounts Receivable Acct. No. 106
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		12,618		12,618
December 4	Cash			3,950	8,668
December 28	Cash			3,000	5,668

Table (12)

The ending balance is $5,668.

Computer Supplies Acct. No. 126
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		2,545		2,545
December 15	Accounts payable		1,100		3,645

Table (13)

The ending balance is $3,645.

Prepaid Insurance Acct. No. 128
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		2,220		2,220

Table (14)

The ending balance is $2,220.

Prepaid Rent Acct. No. 131
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		3,300		3,300

Table (15)

The ending balance is $3,300.

Office Equipment Acct. No. 163
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		8,000		8,000

Table (16)

The ending balance is $8,000.

Accumulated depreciation Office Equipment Acct. No. 164
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		0		0

Table (17)

The ending balance is $0.

Computer Equipment Acct. No. 167
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		20,000		20,000

Table (18)

The ending balance is $20,000.

Accumulated depreciation Computer Equipment Acct. No. 168
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		0		0

Table (19)

The ending balance is $0.

Accounts Payable Acct. No. 201

Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f			0	0
December 15	Computer supplies			1,100	1,100

Table (20)

The ending balance is $1,100.

Wages Payable Acct. No. 210
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f			0	0

Table (21)

The ending balance is $0.

Unearned computer servicerevenue account Acct. No. 236
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f			0	0
December 14	Cash			1,500	1,500

Table (22)

The ending balance is $1,500.

Common Stock Acct. No. 307
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f			73,000	73,000

Table (23)

The ending balance is $73,000.

Retained Earnings Acct. No. 318
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f			0	0

Table (24)

The ending balance is $0.

Dividends Acct. No. 319
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		5,600		5,600
December 31	Cash			1,500	4,100

Table (25)

The ending balance is $4,100.

Computer service revenue Acct. No. 403
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f			25,659	25,659
December 20	Cash			5,625	31,284

Table (26)

The ending balance is $31,284.

Depreciation ExpenseOffice equipment Acct. No. 612
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		0		0

Table (27)

The ending balance is $0.

Depreciation ExpenseComputer equipment Acct. No. 613
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		0		0

Table (28)

The ending balance is $0.

Wages Expense Acct. No. 623
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		2,625		2,625
December 10	Cash		750		3,375

Table (29)

The ending balance is $3,375.

Insurance Expense Acct. No. 637
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		0		0

Table (30)

The ending balance is $0.

Rent Expense Acct. No. 640
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		0		0

Table (31)

The ending balance is $0.

Computer Supplies Expense Acct. No. 652
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		0		0

Table (32)

The ending balance is $0.

Advertising Expense Acct. No. 655
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		1,728		1,728
December 2	Cash		1,025		2,753

Table (33)

The ending balance is $2,753.

Mileage Expense Acct. No. 684
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		704		704
December 29	Cash		192		896

Table (34)

The ending balance is $896.

Miscellaneous Expense Acct. No. 684
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		250		250

Table (35)

The ending balance is $250.

Repairs Expense-Computer Acct. No. 684
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		805		0
December 3	Cash		500		1305

Table (36)

The ending balance is $1,305.

To determine

To prepare: Adjusting entries.

Explanation of Solution

Solution:

a.

Date	Particulars	Post ref	Debit($)	Credit($)
December 31	Computer Supplies Expense		3,065
	Computer Supplies			3,065
	(Being $3,065 worth of computer Supplies got exhausted)

Table (37)

• Computer supplies expense is an expense. Since, expense reduces equity, debit computer supplies expense account.
• Computer supplies are an asset. Since, some of asset used up, it reduces asset. Hence, credit computer supply account.

Working note:

Calculation of computer supply expense,

  $\begin{array}{c}\text{Computer}\text{Supply}\text{Expense}=\left(\begin{array}{l}\text{Opening}\text{Computer}\text{Supply}+\text{Purchase}\\ -\text{Closing}\text{Computer}\text{Supply}\end{array}\right)\\ =\$2,545+\$1,100-\$580\\ =\$3,065\end{array}$

b.

Date	Particulars	Post ref	Debit($)	Credit($)
December 31	Insurance Expense		555
	Prepaid Insurance			555
	(Being insurance coverage worth $555has expired)

Table (38)

• Insurance expense is a expense. Since, expense reduces equity, debit insurance expense account.
• Prepaid Insurance is an asset. Since, some of the insurance is used up, it reduces asset. Hence, credit prepaid insurance account.

Working Note:

Calculation of Insurance expense,

  $\begin{array}{c}\text{Insurance}\text{Expense}=\left(\begin{array}{l}\frac{\text{Number}\text{of}\text{Months}\text{Expired}}{\text{Total}\text{Period}\text{of}\text{Policy}}\\ \times \text{Total}\text{Prepaid}\text{Insurance}\end{array}\right)\\ \text{=}\frac{3}{12}\times \$2,220\\ =\$555\end{array}$

c.

Date	Particulars	Post ref	Debit($)	Credit($)
December 31	Wages Expense		500
	Wages Payable			500
	(Being salaries worth $600 due to be paid)

Table (39)

• Wages expense is a expense. Since, expense reduces equity, debit wages expense account.
• Wages Payable is a liability. Since, expense has occurred but not paid yet, it increases liability. Hence, credit wages payable account.

Working note:

Calculation of salary expense,

  $\begin{array}{c}\text{Wages}\text{Expense}=\text{Number}\text{of}\text{days}\text{Wages}\text{not}\text{paid}\times \text{Daily}\text{Wages}\\ =4\times \$125\\ =\$500\end{array}$

To determine

To prepare: Adjusting entry.

Explanation of Solution

Solution:

Date	Particulars	Post ref	Debit($)	Credit($)
December 31	Depreciation Expense-Computer Equipment		1,250
	Accumulated Depreciation-Computer Equipment			1,250
	(Being depreciation is recorded)

Table (40)

• Depreciation Expense is an expense. Since, expense reduces equity, debit depreciation expense-computer equipment account.
• Accumulated Depreciation-Computer equipment is a Contra asset. Since, it has a normal credit balance. Hence, credit accumulated depreciation-computer equipment account.

Working note:

Calculation of depreciation expense,

  $\begin{array}{c}\text{Depreciation}\text{Expense}=\frac{\text{Number}\text{of}\text{months}\text{asset}\text{is}\text{used}}{\text{Total}\text{life}\text{of}\text{asset}}\times \text{Value}\text{of}\text{asset}\\ =\frac{\text{3}}{48}\times \$20,000\\ =\$1,250\end{array}$

e.

Date	Particulars	Post ref	Debit($)	Credit($)
December 31	Depreciation Expense-Office Equipment		400
	Accumulated Depreciation- Office Equipment			400
	(Being depreciation is recorded)

Table (41)

• Depreciation Expense is an expense. Since, expense reduces equity, debit depreciation expense-office equipment account.
• Accumulated Depreciation-Office equipment is a Contra asset. Since, it has a normal credit balance. Hence, credit accumulated depreciation-office equipment account.

Working note:

Calculation of depreciation expense,

  $\begin{array}{c}\text{Depreciation}\text{Expense}=\frac{\text{Number}\text{of}\text{months}\text{asset}\text{is}\text{used}}{\text{Total}\text{life}\text{of}\text{asset}}\times \text{Value}\text{of}\text{asset}\\ =\frac{\text{3}}{60}\times \$8,000\\ =\$400\end{array}$

f.

Date	Particulars	Post ref	Debit($)	Credit($)
December 31	Rent Expense		2,475
	Prepaid Rent			2,475
	(Being insurance coverage worth $2,475has expired)

Table (42)

• Rent expense is a expense. Since, expense reduces equity, debit rent expense account.
• Prepaid rent is an asset. Since, some of the rent is used up, it reduces asset. Hence, credit prepaid rent account.

Working note:

Calculation of rent expense,

  $\begin{array}{c}\text{Rent}\text{Expense}=\left(\frac{\text{Number}\text{of}\text{Months}\text{Expired}}{\text{Total}\text{Period}\text{of}\text{advance}\text{payment}}\times \text{Total}\text{Prepaid}\text{Rent}\right)\\ \text{=}\frac{3}{4}\times \$3,300\\ =\$2,475\end{array}$

Post adjusting entries to ledger account:

Cash Acct. No. 101
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		38,264		38,264
December 2	Advertising expense			1,025	37,239
December 3	Repairs expense			500	36,739
December 4	Accounts receivable		3,950		40,689
December 10	Salary expense			750	39,939
December 14	Unearned computer service revenue		1,500		41,439
December 20	Computer service revenue		5,625		47,064
December 28	Accounts receivable		3,000		50,064
December 29	Mileage expense			192	49,872
December 31	Dividends			1,500	48,372

Table (43)

The ending balance is $48,372.

Accounts Receivable Acct. No. 106
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		12,618		12,618
December 4	Cash			3,950	8,668
December 28	Cash			3,000	5,668

Table (44)

The ending balance is $5,668.

Computer Supplies Acct. No. 126
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		2,545		2,545
December 15	Accounts payable		1,100		3,645
December 31	Computer supplies expense			3065	580

Table (45)

The ending balance is $580.

Prepaid Insurance Acct. No. 128
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		2,220		2,220
December 31	Insurance expense			555	1,665

Table (46)

The ending balance is $1,665.

Prepaid Rent Acct. No. 131
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		3,300		3,300
December 31	Rent expense			2,475	825

Table (47)

The ending balance is $825.

Office Equipment Acct. No. 163
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		8,000		8,000

Table (48)

The ending balance is $8,000.

Accumulated depreciation Office Equipment Acct. No. 164
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		0		0
December 31	Depreciation expense-Office equipment			400	400

Table (49)

The ending balance is $400.

Computer Equipment Acct. No. 167
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		20,000		20,000

Table (50)

The ending balance is $20,000.

Accumulated depreciation Computer Equipment Acct. No. 168
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		0		0
December 31	Depreciation expense-computer equipment			1,250	1,250

Table (51)

The ending balance is $1,250.

Accounts Payable Acct. No. 201
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f			0	0
December 15	Computer supplies			1,100	1,100

Table (52)

The ending balance is $1,100.

Wages Payable Acct. No. 210
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f			0	0
December 31	Wages expense			500	500

Table (53)

The ending balance is $600.

Unearned computer servicerevenue account Acct. No. 236
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f			0	0
December 14	Cash			1,500	1,500

Table (54)

The ending balance is $1,500.

Common Stock Acct. No. 307
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f			73,000	73,000

Table (55)

The ending balance is $73,000.

Retained Earnings Acct. No. 318
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f			0	0

Table (56)

The ending balance is $0.

Dividends Acct. No. 319
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		5,600		5,600
December 31	Cash		1,500		7,100

Table (57)

The ending balance is $7,100.

Computer service revenue Acct. No. 403
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f			25,659	25,659
December 20	Cash			5,625	31,284

Table (58)

The ending balance is $31,284.

Depreciation ExpenseOffice equipment Acct. No. 612
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		0		0
December 31	Accumulated depreciation-Office Equipment		400		400

Table (59)

The ending balance is $400.

Depreciation ExpenseComputer equipment Acct. No. 613
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		0		0
December 31	Accumulated depreciation-Computer Equipment			1,250	1,250

Table (60)

The ending balance is $1,250.

Wages Expense Acct. No. 623
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		2,625		2,625
December 10	Cash		750		3,375
December 31	Wages payable		500		3,875

Table (61)

The ending balance is $3,875.

Insurance Expense Acct. No. 637
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		0		0
December 31	Prepaid insurance		555		555

Table (62)

The ending balance is $555.

Rent Expense Acct. No. 640
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		0		0
December 31	Prepaid rent		2,475		2,475

Table (63)

The ending balance is $2,475.

Computer Supplies Expense Acct. No. 652
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		0		0
December 31	Computer supplies		3,065		3,065

Table (64)

The ending balance is $3,065.

Advertising Expense Acct. No. 655
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		1,728		1,728
December 2	Cash		1,025		2,753

Table (65)

The ending balance is $2,753.

Mileage Expense Acct. No. 684
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		704		704
December 29	Cash		192		896

Table (66)

The ending balance is $896.

Miscellaneous Expense Acct. No. 684
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		250		250

Table (67)

The ending balance is $250.

Repairs Expense-Computer Acct. No. 684
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		805		0
December 3	Cash		500		1,305

Table (68)

The ending balance is $1,305.

To determine

To prepare: An adjusted trial balance.

Explanation of Solution

B.S. Company
Adjusted Trial Balance
For the three month ended December 31, 2017
Particulars	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 service revenue		1,500
Common Stock		73,000
Retained earnings		0
Dividends	7,100
Computer service revenue		31,284
Depreciation Expense- Office equipment	400
Depreciation Expense- Computer equipment	1,250
Wages Expenses	3,875
Insurance Expense	555
Rent Expenses	2,475
Computer Supply Expense	3,065
Advertising Expense	2,753
Mileage expense	896
Miscellaneous Expense	250
Repairs expense	1,305
Total	109,034	109,034

Table (69)

Thus, the total of adjusted trial balance on 31^thDecember, 2017 is $109,034 .

To determine

To prepare: Income statement.

Explanation of Solution

B.S. Company
Income Statement
For the three month ended December 31, 2017
Particulars	Amount($)	Amount($)
Revenue:
Service Revenue	31,284
Total Revenue		31,284
Expenses:
Depreciation Expense- Office equipment	400
Depreciation Expense- Computer equipment	1,250
Wages Expenses	3,875
Insurance Expense	555
Rent Expenses	2,475
Computer Supply Expense	3,065
Advertising Expense	2,753
Mileage expense	896
Miscellaneous Expense	250
Repairs expense	1,305	16,824
Net income		14,460

Table (70)

Thus, net income of B.S. Company is $14,460 .

To determine

To prepare: Retained Earnings Statement.

Explanation of Solution

B.S. Company
Retained Earnings Statement
For the three month ended December 31, 2017
Particulars	Amount($)
Opening balance	0
Net income	14,460
Dividends	(7,100)
Retained earnings	7,360

Table (71)

Therefore, retained earnings of B.S. Company are $7,360 .

To determine

To prepare: Balance sheet.

Explanation of Solution

B.S. Company
Balance sheet
December 31, 2017
Particulars		Amount($)
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 and Stockholder’s Equity
Liabilities
Accounts payable		1,100
Wages Payable		500
Unearned computer service revenue		1,500
Stockholder’s Equity
Common Stock	73,000
Retained earnings	7,360
Total stockholders’ equity		80,360
Total Liabilities and Stockholder’s equity		83,460

Table (72)

Thus, the balance sheet total is $83,460.

To determine

To prepare: Closing entries.

Explanation of Solution

Service Revenue transfer to income summary account for closing.

Date	Particulars	Post ref	Debit($)	Credit($)
July 31	Service Revenue		31,284
	Income Summary			31,284
	(Being service revenue transfer to income summary account)

Table (73)

• Service revenue is revenue account. Since, revenue is transferred to income summary account, it reduces revenue. Hence, debit service revenue account.
• Income summary is a temporary account. Since, it is used for closing revenue account. Hence, credit income summary account.

All expenses transfer to income summary account for closing.

Date	Particulars	Post ref	Debit($)	Credit($)
July 31	Income summary		16,824
	Depreciation Expense- Office equipment			400
	Depreciation Expense- Computer equipment			1,250
	Wages Expenses			3,875
	Insurance Expense			555
	Rent Expenses			2,475
	Computer Supply Expense			3,065
	Advertising Expense			2,753
	Mileage expense			896
	Miscellaneous Expense			250
	Repairs expense			1,305
	(Being all expenses transfer to income summary account)

Table (74)

• Income summary is a temporary account. Since, it is used for closing expense account. Hence, debit income summary account.
• All expenses are expenses. Since, expenses are transferred to income summary account, expenses is reduced. Hence, credit all expenses account

Income Summary transfer to income summary account for closing.

Date	Particulars	Post ref	Debit($)	Credit($)
July 31	Income Summary		14,460
	Retained Earning			14,460
	(Being net income transfer to retained earnings)

Table (75)

• Income summary is a temporary account. Since, it is used for transferring net income summary to retained account. Hence, debit income summary account.
• Retained earnings come under stockholder’s equity. Since, retained earning has increased. Hence, credit retained earning account.

Deduct dividend from retained earnings.

Date	Particulars	Post ref	Debit($)	Credit($)
July 31	Retained Earning		7,100
	Dividend			7,100
	(Being dividend distributed)

Table (76)

• Retained earnings come under stockholder’s equity. Since, retained earnings is used to pay dividend, retained earnings has decreased. Hence, debit retained earnings account.
• Dividend is distributed from profit. Since it reduces retained earnings. Hence, credit dividend account.

Post closing entries to ledger account:

Cash Acct. No. 101
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		38,264		38,264
December 2	Advertising expense			1,025	37,239
December 3	Repairs expense			500	36,739
December 4	Accounts receivable		3,950		40,689
December 10	Salary expense			750	39,939
December 14	Unearned computer service revenue		1,500		41,439
December 20	Computer service revenue		5,625		47,064
December 28	Accounts receivable		3,000		50,064
December 29	Mileage expense			192	49,872
December 31	Dividends			1,500	48,372

Table (77)

The ending balance is $48,372.

Accounts Receivable Acct. No. 106
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		12,618		12,618
December 4	Cash			3,950	8,668
December 28	Cash			3,000	5,668

Table (78)

The ending balance is $5,668.

Computer Supplies Acct. No. 126
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		2,545		2,545
December 15	Accounts payable		1,100		3,645
December 31	Computer supplies expense			3065	580

Table (79)

The ending balance is $580.

Prepaid Insurance Acct. No. 128
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		2,220		2,220
December 31	Insurance expense			555	1,665

Table (80)

The ending balance is $1,665.

Prepaid Rent Acct. No. 131
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		3,300		3,300
December 31	Rent expense			2,475	825

Table (81)

The ending balance is $825.

Office Equipment Acct. No. 163
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		8,000		8,000

Table (82)

The ending balance is $8,000.

Accumulated depreciation Office Equipment Acct. No. 164
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		0		0
December 31	Depreciation expense-Office equipment			400	400

Table (83)

The ending balance is $400.

Computer Equipment Acct. No. 167
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		20,000		20,000

Table (84)

The ending balance is $20,000.

Accumulated depreciation Computer Equipment Acct. No. 168
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		0		0
December 31	Depreciation expense-computer equipment			1,250	1,250

Table (85)

The ending balance is $1,250.

Accounts Payable Acct. No. 201
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f			0	0
December 15	Computer supplies			1,100	1,100

Table (86)

The ending balance is $1,100.

Wages Payable Acct. No. 210
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f			0	0
December 31	Wages expense			500	500

Table (87)

The ending balance is $600.

Unearned computer servicerevenue account Acct. No. 236
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f			0	0
December 14	Cash			1,500	1,500

Table (88)

The ending balance is $1,500.

Common Stock Acct. No. 307
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f			73,000	73,000

Table (89)

The ending balance is $73,000.

Retained Earnings Acct. No. 318
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f			0	0
December 31	Income summary			14,460
December 31	Dividends		7,100		7,360

Table (90)

The ending balance is $7,360.

Dividends Acct. No. 319
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		5,600		5,600
December 31	Cash		1,500		7,100
December 31	Retained earnings			7,100	0

Table (91)

The ending balance is $0.

Computer service revenue Acct. No. 403
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f			25,659	25,659
December 20	Cash			5,625	31,284
December 31	Income summary		31,284		0

Table (92)

The ending balance is $0.

Depreciation ExpenseOffice equipment Acct. No. 612
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		0		0
December 31	Accumulated depreciation-Office Equipment		400		400
December 31	Income summary			400	0

Table (93)

The ending balance is $0.

Depreciation ExpenseComputer equipment Acct. No. 613
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		0		0
December 31	Accumulated depreciation-Computer Equipment			1,250	1,250
December 31	Income summary		1,250		0

Table (94)

The ending balance is $0.

Wages Expense Acct. No. 623
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		2,625		2,625
December 10	Cash		750		3,375
December 31	Wages payable		500		3,875
December 31	Income summary			3,875	0

Table (95)

The ending balance is $0.

Insurance Expense Acct. No. 637
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		0		0
December 31	Prepaid insurance		555		555
December 31	Income summary			555	0

Table (96)

The ending balance is $0.

Rent Expense Acct. No. 640
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		0		0
December 31	Prepaid rent		2,475		2,475
December 31	Income summary			2,475	0

Table (97)

The ending balance is $0.

Computer Supplies Expense Acct. No. 652
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		0		0
December 31	Computer supplies		3,065		3,065
December 31	Income summary			3,065	0

Table (98)

The ending balance is $0.

Advertising Expense Acct. No. 655
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		1,728		1,728
December 2	Cash		1,025		2,753
December 31	Income summary			2,753	0

Table (99)

The ending balance is $0.

Mileage Expense Acct. No. 684
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		704		704
December 29	Cash		192		896
December 31	Income summary			896	0

Table (100)

The ending balance is $0.

Miscellaneous Expense Acct. No. 684
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		250		250
December 31	Income summary			250	0

Table (101)

The ending balance is $0.

Repairs Expense-Computer Acct. No. 684
Date	Account Title and Explanation	Post ref	Debit($)	Credit($)	Balance($)
December 1	Balance b/f		805		0
December 3	Cash		500		1,305
December 31	Income summary			1,305	0

Table (102)

The ending balance is $0.

To determine

To prepare: Post closing trial balance.

Explanation of Solution

B.S. Company
Post Closing Trial Balance
For the three month ended December 31, 2017
Particulars	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 service revenue		1,500
Common Stock		73,000
Retained earnings		7,360
Dividends	0
Computer service revenue		0
Depreciation Expense- Office equipment	0
Depreciation Expense- Computer equipment	0
Wages Expenses	0
Insurance Expense	0
Rent Expenses	0
Computer Supply Expense	0
Advertising Expense	0
Mileage expense	0
Miscellaneous Expense	0
Repairs expense	0
Total	85,110	85,110

Table (103)

Thus, the total of post closing trial balance on December 31, 2017 is $85,110 .