Santana Rey created Business Solutions on October 1, 2016. The company has been successful, and its list
Question:
Santana Rey created Business Solutions on October 1, 2016. The company has been successful, and its list of customers has grown. To accommodate the growth, the accounting system is modified to set up separate accounts for each customer. The following chart of accounts includes the account number used for each account and any balance as of December 31, 2016. Santana Rey decided to add a fourth digit with a decimal point to the 106 account number that had been used for the single Accounts Receivable account. This change allows the company to continue using the existing chart of accounts. In response to requests from customers, S. Rey will begin selling computer software. The company will extend credit terms of 1/10, n/30, FOB shipping point, to all customers who purchase this merchandise; and it applies perpetual inventory and the gross method. However, no cash discount is available on consulting fees. Additional accounts (Nos. 108, 119, 121, 227, 413, 414, 415, and 502) are added to its general ledger to accommodate the company’s new merchandising activities. Business Solutions does not use reversing entries and, therefore, all revenue and expense accounts have zero beginning balances as of January 1, 2017. Its transactions for January through March follow: The following additional facts are available for preparing adjustments on March 31 prior to financial statement preparation: a. The March 31 amount of computer supplies still available totals $2,005. b. Three more months have expired since the company purchased its annual insurance policy at a $2,220 cost for 12 months of coverage. c. Lyn Addie has not been paid for seven days of work at the rate of $125 per day. d. Three months have passed since any prepaid rent has been transferred to expense. The monthly rent expense is $825. e. Depreciation on the computer equipment for January 1 through March 31 is $1,250. f. Depreciation on the office equipment for January 1 through March 31 is $400. g. After a March 31 physical count of inventory, it is determined that shrinkage occurred and the amount of merchandise inventory still available totals $704. h. On March 31, Rey estimates future-period returns and allowances will be a small percent of sales, or roughly $1,100, and similarly a small percent of cost of sales, or roughly $400. i. On March 31, Rey estimates future-period discounts arising from this period’s sales to be roughly $0. Required 1. Prepare journal entries to record each of the January through March transactions. 2. Post the journal entries in part 1 to the accounts in the company’s general ledger. (Note: Begin with the ledger’s post-closing adjusted balances as of December 31, 2016.) 3. Prepare a partial work sheet consisting of the first six columns (similar to the one shown in Exhibit 4B.1) that includes the unadjusted trial balance, the March 31 adjustments (a) through (h), and the adjusted trial balance. To make it easier, do not prepare closing entries and do not journalize the adjustments or post them to the ledger. 4. Prepare an income statement (from the adjusted trial balance in part 3) for the three months ended March 31, 2017. Use a single-step format. List all expenses without differentiating between selling expenses and general and administrative expenses. 5. Prepare a statement of retained earnings (from the adjusted trial balance in part 3) for the three months ended March 31, 2017. 6. Prepare a classified balance sheet (from the adjusted trial balance) as of March 31, 2017.
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Fundamental Accounting Principles
ISBN: 978-0078110870
20th Edition
Authors: John J. Wild, Ken W. Shaw, Barbara Chiappetta