Chapter 4: Serial Problem 4

Business Solutions Serial Problem – December Transactions and Adjusting Entries December Transactions: 1. Dec. 2: Paid $1,025 cash for mall advertising costs. o Journal Entry: Debit: Advertising Expense, 1,025 2. Dec. 3: Paid $500 cash for computer repairs. o Journal Entry: Debit: Repairs Expense, 500 3. Dec. 4: Received $3,950 cash from Alex’s Engineering Co. for receivable from November. o Journal Entry: Debit: Cash, 3,950 4. Dec. 10: Paid $750 cash to Lyn Addie for six days of work ($125 per day). o Journal Entry: Debit: Salaries Expense, 750 5. Dec. 14: Alex’s Engineering Co. accepted a $7,000 project bid and paid a $1,500 cash advance. o Journal Entry: Debit: Cash, 1,500Credit: Unearned Revenue, 1,500 6. Dec. 15: Purchased $1,100 of computer supplies on credit from Harris Office Products. o Journal Entry: Debit: Supplies, 1,100 o Credit: Accounts Payable, 1,100 7. Dec. 16: Sent reminder to Gomez Co. regarding unpaid service fees from November. o No Journal Entry Required 8. Dec. 20: Completed a project for Liu Corporation and received $5,625 cash. o Journal Entry: Debit: Cash, 5,625 o Credit: Service Revenue, 5,625 9. Dec. 22-26: Took week off for holidays. o No Journal Entry Required 10. Dec. 28: Received $3,000 cash from Gomez Co. on its receivable. • Journal Entry: Debit: Cash, 3,000 11. Dec. 29: Reimbursed S. Rey for automobile mileage (600 miles at $0.32/mile). • Journal Entry: Debit: Mileage Expense, 192 12. Dec. 31: Paid $1,500 cash for dividends. • Journal Entry: Debit: Dividends, 1,500 Adjusting Entries as of December 31, 2021: 1. Computer Supplies Adjustment: o Beginning balance: $1,100 o Ending inventory: $580 o Adjustment for usage: $1,100 - $580 = $520 o Journal Entry: Debit: Supplies Expense, 520 o Credit: Supplies, 520 2. Prepaid Insurance Adjustment: o 3 months of a 12-month policy have expired. o Annual premium: $2,400 o Expired amount: $2,400 / 12 months * 3 months = $600 o Journal Entry: Debit: Insurance Expense, 600 o Credit: Prepaid Insurance, 600 3. Accrued Salaries (Lyn Addie): o Four days of unpaid work at $125/day = $500 o Journal Entry: Debit: Salaries Expense, 500 o Credit: Salaries Payable, 500 4. Depreciation on Computer System: o Computer system life: 4 years (no salvage value) o Depreciation: $5,000 / 4 years = $1,250 annually; $1,250 / 3 months = $312.50 o Journal Entry: Debit: Depreciation Expense— Computer System, 312.50 o Credit: Accumulated Depreciation—Computer System, 312.50 5. Depreciation on Office Equipment: o Office equipment life: 5 years (no salvage value) o Depreciation: $8,000 / 5 years = $1,600 annually; $1,600 / 3 months = $400 o Journal Entry: Debit: Depreciation Expense— Office Equipment, 400 o Credit: Accumulated Depreciation—Office Equipment, 400 6. Prepaid Rent Adjustment: o Four months of prepaid rent, three months expired. o Rent: $1,200 / 4 months = $300 per month; $300 * 3 months = $900 o Journal Entry: Debit: Rent Expense, 900 o Credit: Prepaid Rent, 900 Adjusted Trial Balance (Summary) • Check: Adjusted trial balance totals should be $109,034. Income Statement (Three Months Ended December 31, 2021) • • • • Revenues: o Service Revenue: $16,175 Expenses: o Supplies Expense: $520 o Insurance Expense: $600 o Salaries Expense: $1,250 o Repairs Expense: $500 o Depreciation—Computer System: $312.50 o Depreciation—Office Equipment: $400 o Rent Expense: $900 o Mileage Expense: $192 Total Expenses: $4,674.50 Net Income: $11,500.50 Statement of Retained Earnings (Three Months Ended December 31, 2021) • • • • Beginning Retained Earnings: $0 Net Income: $11,500.50 Less: Dividends: $1,500 Ending Retained Earnings: $10,000.50 Classified Balance Sheet (As of December 31, 2021) • • • Assets: o Cash: $38,747 o Accounts Receivable: $0 o Supplies: $580 o Prepaid Insurance: $1,800 o Prepaid Rent: $300 o Computer System (net): $4,687.50 o Office Equipment (net): $7,600 o Total Assets: $53,714.50 Liabilities: o Accounts Payable: $1,100 o Unearned Revenue: $1,500 o Salaries Payable: $500 o Total Liabilities: $3,100 Equity: o Common Stock: $40,614 o Retained Earnings: $10,000.50 o Total Equity: $50,614.50 Closing Entries (As of December 31, 2021) 1. Close Revenues to Income Summary: o Journal Entry: Debit: Service Revenue, 16,175 o Credit: Income Summary, 16,175 2. Close Expenses to Income Summary: o Journal Entry: Debit: Income Summary, 4,674.50 o Credit: (Various Expense Accounts), 4,674. 3. Close Income Summary to Retained Earnings: o Journal Entry: Debit: Income Summary, 11,500.50 Credit: Retained Earnings, 11,500.50 4. Close Dividends to Retained Earnings: o Journal Entry: Debit: Retained Earnings, 1,500 o Credit: Dividends, 1,500 Post-Closing Trial Balance (As of December 31, 2021) • Check: Post-closing trial balance totals should be $85,110.