[The following information applies to the questions displayed below.] Santana Re
ID: 2447534 • Letter: #
Question
[The following information applies to the questions displayed below.]
Santana Rey created Business Solutions on October 1, 2015. 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, 2015. 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. 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, 2016. Its transactions for January through March follow:
The company paid cash to Lyn Addie for five days’ work at the rate of $225 per day. Four of the five days relate to wages payable that were accrued in the prior year.
The company purchased $7,300 of merchandise from Kansas Corp. with terms of 1/10, n/30, FOB shipping point, invoice dated January 7.
The company completed a five-day project for Alex’s Engineering Co. and billed it $5,470, which is the total price of $6,800 less the advance payment of $1,330.
The company sold merchandise with a retail value of $4,900 and a cost of $3,440 to Liu Corp., invoice dated January 13.
The company paid $610 cash for freight charges on the merchandise purchased on January 7.
The company paid Kansas Corp. for the invoice dated January 7, net of the discount.
Liu Corp. returned $600 of defective merchandise from its invoice dated January 13. The returned merchandise, which had a $290 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 $486.
The company purchased $9,500 of merchandise from Kansas Corp. with terms of 1/10, n/30, FOB destination, invoice dated January 26.
The company sold merchandise with a $4,440 cost for $5,830 on credit to KC, Inc., invoice dated January 26.
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 $486 amount in the credit memorandum.
The company paid $560 cash to the local newspaper for an advertising insert in today’s paper.
The company sold merchandise with a $2,540 cost for $3,360 on credit to Delta Co., invoice dated February 23.
The company reimbursed Santana Rey for business automobile mileage (700 miles at $0.32 per mile).
The company purchased $2,810 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.
The company paid the full amount due to Harris Office Products, consisting of amounts created on December 15 (of $1,170) and March 8.
The company sold merchandise with a $2,192 cost for $2,980 on credit to Wildcat Services, invoice dated March 25.
The company sold merchandise with a $1,248 cost for $2,310 on credit to IFM Company, invoice dated March 30.
The company reimbursed Santana Rey for business automobile mileage (400 miles at $0.32 per mile).
The following additional facts are available for preparing adjustments on March 31 prior to financial statement preparation:
Three more months have expired since the company purchased its annual insurance policy at a $2,400 cost for 12 months of coverage.
Three months have passed since any prepaid rent has been transferred to expense. The monthly rent expense is $885.
The March 31 amount of merchandise inventory still available totals $684.
Prepare journal entries to record each of the January through March transactions.
Santana Rey created Business Solutions on October 1, 2015. 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, 2015. 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.
Explanation / Answer
Answer: Journal entry:
Jan. 4 Paid cash to Lyn Addie for five days’ work at the rate of $225 per day. Four of the five days relate to wages payable that were accrued in the prior year.
For the accrued wages of previous year, the following entries must have been passed:
-On Closing day:
Dr Wages .................... 900
Cr Accrued wages ................... 900
- On first day of next year, the entry must have been reversed:
Dr Accrued wages ..... 900
Cr Wages* ...................................900
In view of '*', the entire wages(including last year's wages) will be debited to Wages A/c. '*' will take care of the debit.
Dr wages ................... 1125
Cr Cash/Bank .............................. 1125
5 Adriana Lopez invested an additional $23500 cash in the business in exchange for more common stock.
Dr Cash ..................... $23500
Cr Common stock .......................... $23500
7 Purchased $7300 of merchandise from Kansas Corp. with terms of 1/10, n/30, FOB shipping point, invoice dated January 7.
Dr Purchases ........... $7300
Cr Sundry Creditors ........................ $7300
9 Received $2,688 cash from Gomez Co. as full payment on its account.
Dr Cash ................ $2,688
Cr Sundry Debtors ........................... $2,688
11 Completed a five-day project for Alex’s Engineering Co. and billed it $5,470, which is the total price of $6800 less the advance payment of $1,330.
Dr Sundry Debtors ............. $5,470
Dr Advance payment ......... $1,330.
Cr Sales ........................................... $6800
13 Sold merchandise with a retail value of $4900 and a cost of $3,440 to Liu Corp., invoice dated
Dr Sundry Debtors ........... $4900
Cr Sales ........................................... $4900
15 jan Paid $610 cash for freight charges on the merchandise purchased on January 7.
Dr Freight on purchases .......... $610
Cr Cash ........................................... $610
16 Received $4,010 cash from Delta Co. for computer services provided.
Dr Cash .......................... $4,010
Cr Sales/Services ............................... $4,010
17 Paid Kansas Corp. for the invoice dated January 7, net of the discount.
Dr Sundry Creditors $7300
Cr Cash $7227
Cr Discount received $73
20 Liu Corp. returned $600 of defective merchandise from its invoice dated January 13. The returned merchandise, which had a $290 cost, is discarded. (The policy of Business Solutions is to leave the cost of defective products in cost of goods sold.)
Dr Sales Returns ............ $600
Cr Sundry Debtors ........................ $600
22 Received the balance due from Liu Corp., net of both the discount and the credit for the returned merchandise.
Dr Cash $4300
Cr Sundry Debtors $4300
The entry of earlier date would have already reduced the balance of Sundry Debtors.
24 Returned defective merchandise to Kansas Corp. and accepted a credit against future purchases. The defective merchandise invoice cost, net of the discount, was $486.
Dr Sundry Creditors $486
Cr Purchases Returned $486
26 Purchased $9,500 of merchandise from Kansas Corp. with terms of 1/10, n/30, FOB destination, invoice dated January 26.
Dr Purchases ................. $9,500
Cr Sundry Creditors ....................... $9,500
26 The company sold merchandise with a $4,440 cost for $5,830 on credit to KC, Inc., invoice dated January 26.
Dr Sundry Debtors ............... $5,830
Cr Sales ........................................... $5,830
31
Paid cash to Lyn Addie for 10 days’ work at $225 per day
Dr Wages ..................... $2250
Cr Cash ....................................... $2250
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