SP 5 Santana Rey created Business Solutions on October 1, 2011. 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, 2011. 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.
No. Account Title Debit Credit
101 Cash $ 48,532
106.1 Alex’s Engineering Co. 0
106.2 Wildcat Services 0
106.3 Easy Leasing 0
106.4 IFM Co. 3,090
106.5 Liu Corp. 0
106.6 Gomez Co. 2,678
106.7 Delta Co. 0
106.8 KC, Inc. 0
106.9 Dream, Inc. 0
119 Merchandise inventory 0
126 Computer supplies 700
128 Prepaid insurance 1,725
131 Prepaid rent 885
163 Office equipment 8,150
164 Accumulated depreciation—Office equipment $ 380
167 Computer equipment 21,100
168 Accumulated depreciation—Computer equipment 1,190
201 Accounts payable 1,250
210 Wages payable $ 540
236 Unearned computer services revenue 1,490
307 Common stock 74,810
318 Retained earnings 7,200
319 Dividends $ 0
403 Computer services revenue 0
413 Sales 0
414 Sales returns and allowances 0
415 Sales discounts 0
502 Cost of goods sold 0
612 Depreciation expense—Office equipment 0
613 Depreciation expense—Computer equipment 0
623 Wages expense 0
637 Insurance expense 0
640 Rent expense 0
652 Computer supplies expense 0
655 Advertising expense 0
676 Mileage expense 0
677 Miscellaneous expenses 0
684 Repairs expense—Computer 0
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. However, no cash discount is available on consulting fees. Additional accounts (Nos. 119, 413, 414, 415, and 502) are added to its general ledger to accommodate the company’s new merchandising activities. Also, Business Solutions does not use reversing entries and, therefore, all revenue and expense accounts have zero beginning balances as of January 1, 2012. Its transactions for January through March follow:
The company paid cash to Lyn Addie for five days’ work at the rate of $135 per day. Four of the five days relate to wages payable that were accrued in the prior year.
5 Santana Rey invested an additional $24,400 cash in the company in exchange for more common stock.
The company purchased $6,100 of merchandise from Kansas Corp. with terms of 1/10, n/30, FOB shipping point, invoice dated January 7.
9 The company received $2,678 cash from Gomez Co. as full payment on its account.
The company completed a five-day project for Alex’s Engineering Co. and billed it $5,360, which is the total price of $6,850 less the advance payment of $1,490.
The company sold merchandise with a retail value of $4,100 and a cost of $3,430 to Liu Corp., invoice dated January 13.
The company paid $730 cash for freight charges on the merchandise purchased on January 7.
16 The company received $4,050 cash from Delta Co. for computer services provided.
The company paid Kansas Corp. for the invoice dated January 7, net of the discount.
Liu Corp. returned $700 of defective merchandise from its invoice dated January 13. The returned merchandise, which had a $270 cost, is discarded. (The policy of Business Solutions is to leave the cost of defective products in cost of goods sold.)
The company received the balance due from Liu Corp., net of both the discount and the credit for the returned merchandise.
The company returned defective merchandise to Kansas Corp. and accepted a credit against future purchases. The defective merchandise invoice cost, net of the discount, was $476.
The company purchased $9,100 of merchandise from Kansas Corp. with terms of 1/10, n/30, FOB destination, invoice dated January 26.
The company sold merchandise with a $4,610 cost for $5,900 on credit to KC, Inc., invoice dated January 26.
The company received a $476 credit memorandum from Kansas Corp. concerning the merchandise returned on January 24.
31 The company paid cash to Lyn Addie for 10 days’ work at $135 per day.
The company paid $2,655 cash to Hillside Mall for another three months’ rent in advance.
The company paid Kansas Corp. for the balance due, net of the cash discount, less the $476 amount in the credit memorandum.
The company paid $560 cash to the local newspaper for an advertising insert in today’s paper.
11 The company received the balance due from Alex’s Engineering Co. for fees billed on January 11.
15 The company paid $4,760 cash for dividends.
The company sold merchandise with a $2,610 cost for $3,260 on credit to Delta Co., invoice dated February 23.
26 The company paid cash to Lyn Addie for eight days’ work at $135 per day.
The company reimbursed Santana Rey for business automobile mileage (1,000 miles at $0.15 per mile).
The company purchased $2,730 of computer supplies from Harris Office Products on credit, invoice dated March 8.
The company received the balance due from Delta Co. for merchandise sold on February 23.
11 The company paid $860 cash for minor repairs to the company’s computer.
16 The company received $5,350 cash from Dream, Inc., for computing services provided.
The company paid the full amount due to Harris Office Products, consisting of amounts created on December 15 (of $1,250) and March 8.
24 The company billed Easy Leasing for $9,237 of computing services provided.
The company sold merchandise with a $2,192 cost for $2,940 on credit to Wildcat Services, invoice dated March 25.
The company sold merchandise with a $1,108 cost for $2,240 on credit to IFM Company, invoice dated March 30.
The company reimbursed Santana Rey for business automobile mileage (1,100 miles at $0.15 per mile).
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 $2,045.
b. Three more months have expired since the company purchased its annual insurance policy at a $2,300 cost for 12 months of coverage.
c. Lyn Addie has not been paid for seven days of work at the rate of $135 per day.
d. Three months have passed since any prepaid rent has been transferred to expense. The monthly rent expense is $885.
e. Depreciation on the computer equipment for January 1 through March 31 is $1,190.
f. Depreciation on the office equipment for January 1 through March 31 is $380.
g. The March 31 amount of merchandise inventory still available totals $554.