Assignment:
Complete the following 14 Q. (requirements) utilizing the necessary forms in document sharing.
On October 1, 2009, Adriana Lopez launched a computer services company called Success Systems, which provides consulting services, computer system installations, and custom program development. Lopez adopts the calendar year for reporting purposes and expects to prepare the company's first set of financial statements on December 31, 2009. The company's initial chart of accounts follows.
No. Account Title
101 Cash
106 Accounts receivable
126 Computer Supplies
128 Prepaid Insurance
131 Prepaid Rent
163 Office Equipment
164 Accumulated depreciation- office equipment
167 Computer Equipment
168 Accumulated depreciation- computer equipment
201 Accounts Payable
210 Wages Payable
236 Unearned computer services revenue
301 A. Lopez, Capital
302 A. Lopez, Withdrawals
403 Computer services revenue
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 expenses
684 Repairs expense- computer
901 Income Summary
Q 1: Prepare journal entries to record each of the October transactions and post the October entries to the accounts in the ledger. Then create a trial balance for October.
October Transactions
1 Lopez invested $55,000 cash, a $20,000 computer system, and $8,000 of office equipment in the company.
2 The company paid $3,300 cash for four months' rent. (Hint: Debit Prepaid Rent for $3,300
3 The company purchased $1,420 of computer supplies on credit from Harris Office Products.
5. The company paid $2,220 cash for one year's premium on a property and liability insurance policy. (Hint: Debit Prepaid Insurance for $2,220)
6. The company billed Easy Leasing $4,800 for services performed in installing a new Web server.
8. The Company paid $1,420 cash for the computer supplies purchased from Harris Office Products on October 3.
10. The company hired Lyn Addie as a part-time assistant for $125 per day, as needed.
12. The company billed Easy Leasing another $1,400 for services performed.
15. The company received $4,800 cash from Easy Leasing as partial payment on its account.
17. The company paid $805 cash to repair computer equipment that was damaged when moving it.
20. The company paid $1,940 cash for an advertisement in the local newspaper.
22. The company received $1,400 cash from Easy Leasing on its account.
28. The company billed IFM Company $5,208 for services performed.
31. The company paid $875 cash for Lyn Addie's wages for seven days' work.
31. A. Lopez withdrew $3,600 cash from the company for personal use.
Q 2: Prepare journal entries to record each of the November transactions and post the November entries to the accounts in the ledger. Then create a trial balance for November.
November transactions
1. The company reimbursed Lopez in cash for business automobile mileage allowance (Lopez logged 1,000 miles at $0.32 per mile.)
2. The company received $4,633 cash from Liu Corporation for computer services performed.
5. The company purchased computer supplies for $1,125 cash from Harris Office Products.
8. The company billed Gomez Co. $5,668 for services performed.
13. The company received notification from Alex's Engineering Co. that Success Systems' bid of $3,950 for an upcoming project is accepted.
18. The company received $2,208 cash from IFM Company as partial payment of the October 28 bill.
22. The company donated $250 cash to the United Way in the company's name.
24 The company completed work for Alex's Engineering co. and sent it a bill for $3,950.
25 The company sent another bill to IFM Company for the past-due amount of $3,000.
28 The company reimbursed Lopez in cash for business automobile mileage (1,200 miles at $0.32 per mile.)
30 The company paid $1.750 cash for Lyn Addie's wages for 14 days' work.
30 A. Lopez withdrew $2,000 cash from the company for personal use.
Q 3: Prepare journal entries to record each of the December transactions and post the December entries to the accounts in the ledger. Then create a trial balance for December.
December transactions
2 Paid $1,025 cash to Hillside Mall for Success Systems' share of mall advertising costs.
3 Paid $500 cash for minor repairs to the company's computer.
4 Received $3,950 cash from Alex's Engineering Co. for the receivable from November.
10 Paid cash to Lyn Addie for six days of work at the rate of $125 per day
14 Notified by Alex's Engineering Co. that Success's bid of $7,000 on a proposed project had been accepted. Alex's paid a $1,500 cash advance to Success Systems.
15 Purchased $1,100 of computer supplies on credit from Harris Office Products.
16 Sent a reminder to Gomez Co. to pay the fee for services recorded on November 8.
20 Completed a project for Liu Corporation and received $5,625 cash.
22-26 Took the week off for the holidays
28 Received $3,000 cash from Gomez Co. on its receivable
29 Reimbursed Lopez's business automobile mileage (600 miles at $0.32 per mile)
31 A. Lopez withdrew $1,500 cash from the company for personal use
The following additional facts are collected for use in making adjusting entries prior to preparing financial statements for the company's first three months:
a. The December 31 inventory count of computer supplies shows $580 still available
b. Three months have expired since the 12-month insurance premium was paid in advance
c. As of December 31, Lyn Addie has not been paid for four days of work at $125 per day.
d. The company's computer is expected to have a four-year life with no salvage value
e. The office equipment is expected to have a five-year life with no salvage value
f. Three of the four months' prepaid rent has expired
Q 4: Complete the following requirements.
a) Prepare a worksheet utilizing the adjusting entries listed above.
b) Journalize and post adjusting entries.
c) Prepare an income statement for the three months ended December 31, 2009.
d) Prepare a statement of owner's equity for the three months ended December 31, 2009
e) Prepare a balance sheet as of December 31, 2009.
f) Record and post the necessary closing entries for Success System.
g) Prepare a post-closing trial balance as of December 31, 2009.
To accommodate the growth, the accounting system is modified to set up separate accounts for each customer. The following accounts have been added to the chart of accounts. 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. The Accounts Receivable balance consists of the balances in the two accounts indicated below. This change allows the company to continue using the existing chart of accounts.
No. Account Title
106.1 Alex's Engineering Co.
106.2 Wildcat Services
106.3 Easy Leasing
106.4 IFM Co. $3,000
106.5 Liu Corp
106.6 Gomez Co. $2,668
106.7 Delta Co.
106.8 KC, Inc.
106.9 Dream, Inc.
119 Merchandise Inventory
413 Sales
414 Sales Returns & Allowances
415 Sales Discounts
502 Cost of Goods Sold
In response to requests from customers, Lopez will begin selling computer software. This 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. The new accounts, listed above, must be added to Success System's general ledger to accommodate the company's new merchandising activities. Since you have already closed for the three months ended December 31, 2009, all revenue and expense accounts should begin with zero balances.
Transactions for January, February and March 2010 are listed below. Complete the listed requirements.
Q 5: Prepare journal entries to record each of the January transactions and post the January entries to the accounts in the ledger. Then create a trial balance for January 2010.
January Transactions
4 The company paid cash to Lyn Addie for five days' work at the rate of $125 per day. Four of the five days related to wages payable that were accrued in the prior year
5 Adriana Lopez invested an additional $25,000 cash in the company
7 The company purchased $5,800 of merchandise from Kansas Corp. with terms of 1/10, n/30
9 The company received $2,668 cash from Gomez Co. as full payment on its account
11 The company completed a five-day project for Alex's Engineering Co. and billed it $5500 which is the total price of $7,000 less the advance payment of $1,500
13 The company sold merchandise with a retail value of $5,200 and a cost of $3,560 to Liu Corp. invoice dated January 13.
15 The company paid $600 cash for freight charges on the merchandise purchased on January 7
16 The company received $4,000 cash from Delta Co. for computer services provided.
17 The company paid Kansas Corp. for the invoice dated January 7, net of the discount
20 Liu Corp. returned $500 of defective merchandise from its invoice dated January 13. The returned merchandise, which had a $320 cost, is discarded. (The policy of Success Systems is to leave the cost of defective products in cost of goods sold.)
22 The company received the balance due from Liu 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 The company purchased $9,000 of merchandise from Kansas corp. with terms of 1/10, n/30, FOB destinations, invoice dated January 26.
26 The company sold merchandise with a $4,640 cost for $5,800 on credit to KC, Inc., invoice dated January 26.
29 The company received a $496 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 $125 per day.
Q 6:
A: Prepare journal entries to record each of the February transactions and post the February entries to the accounts in the ledger. Then create a trial balance for February 2010.
February transactions
1 The company paid $2,475 cash to Hillside Mall for another three months' rent in advance.
3 The company paid Kansas Corp. for the balance due, net of the cash discount, less the $496 amount in the credit memorandum
5 The company paid $600 cash to the local newspaper for an advertising insert in today's paper
11 The company received the balance due from Alex Engineering Co. for fees billed on January 11
15 Adriana Lopez withdrew $4,800 cash from the company for personal use
23 The company sold merchandise with a $2,660 cost for $3,220 on credit to Delta Co., invoice dated February 23.
26 The company paid cash to Lyn Addie for eight days' work at $125 per day.
27 The company reimbursed Adriana Lopez for business automobile mileage (600 miles at $0.32 per mile.)
B: Prepare journal entries to record each of the March transactions and post the March entries to the accounts in the ledger. Then create a trial balance for March 2010.
March Transactions
8 The company purchased $2,730 of computer supplies from Harris Office Products on credit, invoice dated March 8.
9 The company received the balance due from Delta Co. for merchandise sold on February 23.
11 The company paid $960 cash for minor repairs to the company's computer.
16 The company received $5,260 cash from Dream, Inc., for computing services provided.
19 The company paid the full amount due to Harris Office Products, consisting of amounts created on December 15 (of $1,100) and March 8.
24 The company billed Easy Leasing for $8,900 of computing services provided.
25 The company sold merchandise with a $2,002 cost for $2,800 on credit to Wildcat Services, invoice dated March 25.
30 The company sold merchandise with a $1,100 cost for $2,220 on credit to IFM Company, invoice dated March 30.
31 The company reimbursed Adriana Lopez 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:
a. The March 31 amount of computer supplies still available totals $2,005.
b. Three more months have expired since the company purchased its annual insurance policy at $2,220 cost for 12 months of coverage.
c. Lyn Addie has not been paid for seven days of work at the rate of $125 per day.
d. Three months have passed since any prepaid rent has been transferred to expense. The monthly rent expense is $825.
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 $400.
g. The March 31 amount of merchandise inventory still available total $704.
Q 7: Complete the following requirements.
a) Prepare a worksheet utilizing the adjusting entries listed above.
b) Journalize and post adjusting entries.
c) Prepare both a multiple and single-step income statements for the three months ended March 31, 2010.
d) Prepare a statement of owner's equity for the three months ended March 31, 2010.
e) Prepare a classified balance sheet as of March 31, 2010.
f) Record and post the necessary closing entries for Success System.
g) Prepare a post-closing trial balance as of March 31, 2010.
Q 8:
Part A
Adriana Lopez of Success Systems is evaluating her inventory to determine whether it must be adjusted based on lower of cost of market rules. Lopez has three different types of software in her inventory and the following information is available for each.
Per Unit
Inventory Items Units Cost Market
Office Productivity 3 $76 $74
Desktop Publishing 2 103 100
Accounting 3 90 96
Required:
1. Compute the lower of cost or market for ending inventory assuming Lopez applies the lower of cost or market rule to inventory as a whole. Must Lopez adjust to the reported inventory value? Explain
2. Assume that Lopez had instead applied the lower of cost or market rule to each product in inventory. Under this assumption, must Lopez adjust the reported inventory value? Explain.
Part B
Selected accounts and balances for the three months ended March 31, 2010, for Success Systems follow:
January 1 beginning inventory............... $ 0
Cost of Goods Sold.............................$14,052
March 31 ending inventory................... $704
Required
1. Computer inventory turnover and days' sales in inventory for the three months ended March 31, 2010.
2. Assess the company's performances if competitors average 10 times for inventory turnover and 29 days for days' sales in inventory.
Q 9: At the start of 2010, Adriana Lopez is considering adding a partner to her business. She envisions the new partner taking the lead in generating sales of both services and merchandise for Success Systems. Lopez's equity is Success Systems as of January 1, 2010, is reflected in the following capital balance
A. Lopez....................... $90,148
Required:
1. Lopez is evaluating whether the prospective partner should be an equal partner with respect to capital investment and profit sharing (1:1) or whether the agreement should be 4:1 with Lopez retaining four-fifths interest with rights to four-fifths of the net income or loss. What factors should she consider in deciding which partnership agreement to offer?
2. Prepare the January 1, 2010, journal entry(ies) necessary to admit a new partner to Success Systems through the purchase of a partnership interest for each of the following two separate cases: (a) 1:1 sharing agreement and (b) 4:1 sharing agreement.
3. Prepare the January 1, 2010, journal entry(ies) required to admit a new partner if the new partner invests cash of $22,537.
4. After posting the entry is part 3, what would be the new partner's equity percentage?
Q 10: Adriana Lopez created Success Systems on October 1, 2009. The company has been successful, and Adriana plans to expand her business. She believes that an additional $86000 is needed and it investigating three funding sources.
a. Adriana's sister Cicely is willing to invest $86,000 in the business as a common shareholder. Since Adriana currently had about $129,000 invested in to business, Cicely's investment will mean that Adriana will maintain about 60% ownership, and Cicely will have 40% ownership of Success Systems.
b. Adriana's uncle Marcello is will to invest the $86,000 in the business as a preferred shareholder. Marcello would purchase 860 shares of $100 par value, 7% preferred stock.
c. Adriana's banker is willing to lend her $86,000 on a 7%, 10-year note payable. Adriana would make monthly payments of $1,000 per month for 10 years.
Required:
1. Prepare the journal entry to reflect the initial $86,000 investment under each of the options A, B, and C.
2. Evaluate the three proposals for expansion, providing the pros and cons of each option.
3. Which option do you recommend Adriana adopt? Explain.
Q 11: Adriana Lopez has consulted with her local banker and is considering financing an expansion of her business by obtaining a long-term bank loan. Selected account balances at March 31, 2010, for Success Systems follow.
Total assets......... $129,909
Total liabilities......... $875
Total equity............ $ 129,034
Required:
1. The bank has offered a long-term secured not to Success Systems. The bank's loan procedures require that a client's debt-to-equity ratio not exceed 0.8. As of March 31, 2010, what is the maximum amount that Success Systems could borrow from this bank (rounded to nearest dollar)?
2. If Success Systems borrows the maximum amount allowed from the bank, what percentage of assets would be financed (a) by debt and (b) by equity?
3. What are some factors Lopez should consider before borrowing the funds?
Q 12: While reviewing the March 31, 2010, balance sheet of Success Systems, Adriana Lopez notes that the business has built large cash balance of $77,845. Its most recent bank money market statement shows that the funds are earning an annualized return on 0.75%. Lopez decides to make several investments with the desire to earn a higher return on the idle cash balance. Accordingly, in April 2010, Success Systems makes the following investments in trading securities:
April 16 Purchases 400 shares of Johnson & Johnson stock at $50 per share plus $300 commission
April 30 Purchases 200 shares of Starbucks Corporation at $22 per share plus $250 commission
On June 30, 2010, the per share market price of the Johnson & Johnson shares is $55 and the Starbucks shares is $19.
Required:
1. Prepare journal entries to record the April purchases of trading securities by Success Systems
2. On June 30, 2010, prepare the adjusting entry to record any necessary market adjustment to its portfolio of trading securities.
Q 13: Adriana Lopez, owner of Success Systems, decides to prepare a statement of cash flows for her business. Although the serial problem allowed for various ownership changes in earlier chapters, we will prepare the statement of cash flows using the following financial data utilize the Success Serial Systems March 31, 2010 Income Statement and Comparative Balance Sheets.
Required:
Prepare a statement of cash flows for Success Systems using the indirect method for the three months ended March 31, 2010. Recall that the owner Adriana Lopez contributed $25,000 to the business in exchange for additional stock in the first quarter of 2010 and has received $4,800 in cash dividends.
Q 14: Using the following selected date from Success Systems' income statement for the three months ended March 31, 2010, and from its March 31, 2010, balance sheet to complete the requirements below:
computer services revenue, $25,160; net sales (of goods), $18,693; total sales and revenue, $43,853; cost of goods sold, $14,052; net income, $18,686; quick assets, $100,205; current assets, $105,209; total assets, $129,909; current liabilities, $875; total liabilities, $875; and total equity, $129,034.
Required:
1. Compute the gross margin ratio (both with and without services revenue) and net profit margin ratio.
2. Computer the current ratio and acid-test ratio.
3. Compute the debt ratio and equity ratio.
4. What percent of its assets are current? What percent arelong term?