Term Problem On October 1, 2014, Adriana Lopez launched a computer services company called Success Systems, which provides consulting services, computer systems installations, and custom program development. Lopez adopts the calendar year for reporting purposes and prepared the company's first set of financial statements on December 31, 2014. 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, 2014. Lopez 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 modification allows the company to continue using the existing chart of accounts. Cash Accounts Receivable - ABC Service Corp. Accounts Receivable - Bobcat Co. Accounts Receivable - Colburt Co. Accounts Receivable - Delta Corp. Accounts Receivable - Energy Co. Accounts Receivable - Five Bros, Inc. Accounts Receivable - Good Times, Inc Accounts Receivable - Hard Leasing Accounts Receivable - Inventory, Inc. Merchandise Inventory Computer Supplies Prepaid Insurance Prepaid Rent Office Equipment Accumulated Depreciation - Office Equipment Computer Equipment Accumulated Depreciation - Computer Equipment Accounts Payable Wages Payable Unearned Computer Services Revenue 3,500 14,000 5,500 15,400 4,800 SUCCESS SYSTEMS Trial Balance January 1, 2015 4,200 Acct. 236 167 168 201 210 No. 119 128 131 163 164 106.4 106.5 106.6 106.7 106.8 106.9 101 106.1 106.2 106.3 126 Debit Credit 6,000 1,620 $ 15,000 $ 550 42,000 2,100 1,500 A. Lopez, Capital A. Lopez, Withdrawals Computer Services Revenue Sales Sales Returns and Allowances Sales Discounts Cost of Goods Sold Depreciation Expense - Office Equipment Depreciation Expense - Computer Equipment Wages Expense Insurance Expense Rent Expense Computer Supplies Expense Advertising Expense Mileage Expense Miscellaneous Expense Repairs Expense - Computer Totals In response to requests from customers, Lopez will begin selling computer software. The company will extend credit terms of 1/20, n/30, FOB shipping point, to all customers who purchase this merchandise. However, no cash discount is available on consulting fees. Success Systems does not use reversing entries and, therefore, all revenue and expense accounts have zero balances as of January 1, 2015. Its transactions for January through March follow: Jan Paid cash to Lisa Wu for fourteen days' work at the rate of per day. Nine of the fourteen days relate to wages payable that were accrued in the prior year. Sold merchandise with a retail value of and a cost of to ABC Service Corp., invoice dated January 10. Received cash from Inventory, Inc. as full payment on its account. Purchased of merchandise from Nevada Corp. with terms of 1/15, n/30, FOB shipping point, invoice dated January 11. Debit $104,400 $104,400 640 January 1, 2015 SUCCESS SYSTEMS 652 655 676 677 684 415 502 612 613 623 637 No. 301 403 302 413 414 Acct. Trial Balance (Continued) 92,630 Credit 11 7 $180 10 10 $ 5,500 $ 9,000 $ 14,000 $ 10,500 Adriana Lopez invested an additional cash in the business. Paid cash for freight charges on the merchandise purchased on January 11. Paid cash to Big Mall for another three months' rent in advance. Adriana Lopez withdrew cash for personal use. Paid Nevada Corp. for the invoice dated January 11, net of the discount. ABC Service Corp. returned of defective merchandise from its invoice dated January 10. The returned merchandise, which had a cost, is discarded. (The policy of Success Systems is to leave the cost of defective products in cost of goods sold.) Completed a five-day project for Bobcat Co. and billed it which is the total price of less the advance payment of . Feb Purchased of computer supplies from Cain Office Products on credit, invoice dated March 8. Received the balance due from ABC Service Corp., net of both the discount and the credit for the returned merchandise. Paid cash to Lisa Wu for 17 days' work at per day. Reimbursed Adriana Lopez for business automobile mileage ( miles at per mile). Paid cash to the local newspaper for an advertising insert in today's paper. Mar Paid cash to Lisa Wu for 18 days' work at per day. Paid the full amount due to Cain Office Products, including amounts created on December 28 (of ) and February 1. Paid cash for minor repairs to the company's computer. Received the balance due from Bobcat Co. for fees billed on January 27. Sold merchandise for with a cost of on credit to Delta Corp., invoice dated March 25. Billed Five Bros, Inc. for of computing services provided. Reimbursed Adriana Lopez for business automobile mileage ( miles at 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 merchandise inventory still available totals . b. Wu has not been paid for 23 days of work at the rate of per day. c. Three more months have expired since the company purchased its annual insurance policy at a cost for 12 months of coverage. $ 180 $480 $ 6,000 500 400 16 17 $0.56 $ 8,400 25 $ 12,000 $ 6,750 31 15 $ 225 $180 15 1 4 $25,000 14 $ 5 17 18 12 $ 7,200 25 $ 15,000 25 25 $600 27 $ 0.56 $ 7,600 $ 5,700 $1,500 1 $ 1,250 1 1 $ 2,100 $180 $ 9,000 $ 9,500 d. Depreciation on the computer equipment for January 1 through March 31 is . e. Depreciation on the office equipment for January 1 through March 31 is . f. The March 31 amount of computer supplies still available totals . g. Three months have passed since any prepaid rent has been transferred to expense. The monthly rent expense is . 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 January 1, 2015.) 3. Prepare a partial work sheet consisting of the first six columns (similar to the one shown in Exhibit 4.1 on page 150.) that includes the unadjusted trial balance, the March 31 adjustments (a) through (g), and the adjusted trial balance. Journalize the adjustments, and 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, 2015. Use the multi-step format. List all expenses without differentiating between selling expenses and general and administrative expenses. See the example on page 205, Exhibit 5.13. 5. Prepare a statement of owner's equity (from the adjusted trial balance in part 3) for the three months ended March 31, 2015. See the example on page 151, Exhibit 4.2. 6. Prepare a classified balance sheet (from the adjusted trial balance) as of March 31, 2015. See the example on page 159, Exhibit 4.9. Check Unadjusted Trial Balance Totals - Adjusted Trail Balance Totals - Cash ending balance - $ 27,752 $ 2,400 $ 174,470 $ 2,950 $ 168,280 $ 550 $1,500