Acc225 Fundamental Accounting Principles: Serial Problem 5 (SP5) Adriana Lopez, Success Systems

Acc225 Fundamental Accounting Principles
(This serial problem began in Chapter 1 and continues through most of the book. If previous chapter segments were not completed, the serial problem can begin at this point. It is helpful, but not necessary, to use the Working Papers that accompany the book.)

Serial Problem 5 (SP 5) - Success Systems
Adriana Lopez created Success Systems on October 1, 2007. 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, 2007. 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 change allows the company to continue using the existing chart of accounts.
No. Accounts Dr. Cr.
101 Cash 80,260
106.1 Alex's Engineering Co -
106.2 Wildcat Services -
106.3 Easy Leasing -
106.4 Clark Co. 2,300
106.5 Chang Corp. -
106.6 Gomez Co. 3,500
106.7 Delta Co. -
106.8 KC, Inc. -
106.9 Dream, Inc. -
119 Merchandise Inventory -
126 Computer Supplies 775
128 Prepaid Insurance 1,800
131 Prepaid Rent 875
163 Office Equipment 10,000
164 Accumulated Depreciation - Office Equipment 625
167 Computer Equipment 25,000
168 Accumulated Depreciation - Computer Equipment 1,250
201 Accounts Payable 2,100
210 Wages Payable 600
236 Unearned Computer Service Revenue 2,500
301 A. Lopez, Capital 117,435
302 A. Lopez, Withdrawals -
403 Computer Services Revenue -
413 Sales -
414 Sales Returns and Allowances -
415 Sales Discounts -
502 Cost of Goods Sold -
612 Depreciation Expense - Office Equipment -
613 Depreciation Expense - Computer Equipment -
623 Wages Expense -
637 Insurance Expense -
640 Rent Expense -
652 Computer Supplies Expense -
655 Advertising Expense -
676 Mileage Expense -
677 Miscellaneous Expense -
684 Repairs Expense - Computer -
$124,510 $124,510
In response to requests from customers, Lopez 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, Success Systems does not use reversing entries and, therefore, all revenue and expense accounts have zero beginning balances as of January 1, 2008. Its transactions for January through March follow:
Jan. 4 The company paid cash to Michelle Jones for five days’ work at the rate of $150 per day. Four of the five days relate to wages payable that were accrued in the prior year.
5 Adriana Lopez invested an additional $10,000 cash in the company.
7 The company purchased $5,700 of merchandise from Kansas Corp. with terms of 1/10, n/30, FOB shipping point, invoice dated January 7.
9 Received $3,500 cash from Gomez Co. as full payment on its account.
11 Completed a five-day project for Alex’s Engineering Co. and billed it $6,500, which is the total price of $9,000 less the advance payment of $2,500.
13 Sold merchandise with a retail value of $6,000 and a cost of $4,080 to Chang Corp., invoice dated January 13.
15 Paid $400 cash for freight charges on the merchandise purchased on January 7.
16 Received $5,600 cash from Delta Co. for computer services provided.
17 Paid Kansas Corp. for the invoice dated January 7, net of the discount.
20 Chang Corp. returned $500 of defective merchandise from its invoice dated January 13. The returned merchandise, which had a $340 cost, is discarded. (The policy of Success Systems is to leave the cost of defective products in cost of goods sold.)
22 Received the balance due from Chang Corp., net of both the discount and the credit for the returned merchandise.
24 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 $496.
26 Purchased $9,500 of merchandise from Kansas Corp. with terms of 1/10, n/30, FOB destination, invoice dated January 26.
26 Sold merchandise with a $3,196 cost for $4,700 on credit to KC, Inc., invoice dated January 26.
29 Received a $496 credit memorandum from Kansas Corp. concerning the merchandise returned on January 24.
31 Paid cash to Michelle Jones for 10 days’ work at $150 per day.

Feb. 1 Paid $2,625 cash to Summit Mall for another three months’ rent in advance.
3 Paid Kansas Corp. for the balance due, net of the cash discount, less the $496 amount in the credit memorandum.
5. Paid $800 cash to the local newspaper for an advertising insert in today’s paper.
11. Received the balance due from Alex’s Engineering Co. for fees billed on January 11.
15 Adriana Lopez withdrew $5,200 cash for personal use.
23 Sold merchandise with a $2,584 cost for $3,800 on credit to Delta Co., invoice dated February 23.
26. Paid cash to Michelle Jones for eight days’ work at $150 per day.
27 Reimbursed Adriana Lopez for business automobile mileage (1,000 miles at $0.32 per mile).

Mar. 8 Purchased $3,250 of computer supplies from Cain Office Products on credit, invoice dated March 8.
9 Received the balance due from Delta Co. for merchandise sold on February 23.
11. Paid $1,200 cash for minor repairs to the company’s computer.
16 Received $6,250 cash from Dream, Inc., for computing services provided.
19 Paid the full amount due to Cain Office Products, consisting of amounts created on December 15 (of $2,100) and March 8.
24 Billed Easy Leasing for $11,000 of computing services provided.
25 Sold merchandise with a $2,652 cost for $3,900 on credit to Wildcat Services, invoice dated March 25.
30 Sold merchandise with a $1,700 cost for $2,500 on credit to Clark Company, invoice dated March 30.
31 Reimbursed Adriana Lopez for business automobile mileage (600 miles at $0.32 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 $1,950.
b. Three more months have expired since the company purchased its annual insurance policy at a $2,400 cost for 12 months of coverage.
c. Michelle Jones has not been paid for seven days of work at the rate of $150 per day.
d. Three months have passed since any prepaid rent has been transferred to expense. The monthly rent expense is $875.
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 $625.
g. The March 31 amount of merchandise inventory still available totals $680.

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, 2007.)
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 (g), and the adjusted trial balance. 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, 2008. 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, 2008.
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