Adria Lopez created Success Systems on October 1, 2013. The company has been suc

ID: 2418322 • Letter: A

Question

In response to requests from customers, A. 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, 2014. Its transactions for January through March follow:

The company paid cash to Lyn Addie for five days’ work at the rate of $125 per day. Four of the five days relate to wages payable that were accrued in the prior year.

The company purchased $5,800 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 $5,500, which is the total price of $7,000 less the advance payment of $1,500.

The company sold merchandise with a retail value of $5,200 and a cost of $3,560 to Liu Corp., invoice dated January 13.

The company paid $600 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 $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.)

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 $496.

The company purchased $9,000 of merchandise from Kansas Corp. with terms of 1/10, n/30, FOB destination, invoice dated January 26.

The company sold merchandise with a $4,640 cost for $5,800 on credit to KC, Inc., invoice dated January 26.

The company received a $496 credit memorandum from Kansas Corp. concerning the merchandise returned on January 24.

The company paid $2,475 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 $496 amount in the credit memorandum.

The company paid $600 cash to the local newspaper for an advertising insert in today’s paper.

The company sold merchandise with a $2,660 cost for $3,220 on credit to Delta Co., invoice dated February 23.

The company reimbursed Adria Lopez for business automobile mileage (600 miles at $0.32 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.

The company paid the full amount due to Harris Office Products, consisting of amounts created on December 15 (of $1,100) and March 8.

The company sold merchandise with a $2,002 cost for $2,800 on credit to Wildcat Services, invoice dated March 25.

The company sold merchandise with a $1,100 cost for $2,220 on credit to IFM Company, invoice dated March 30.

The company reimbursed Adria 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:

The March 31 amount of merchandise inventory still available totals $704.

QUESTIONS:

Prepare journal entries to record each of the January through March transactions.

Explanation / Answer

Adria Lopez created Success Systems on October 1, 2013. 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, 2013. Adria 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. Account Title Debit Credit
101 Cash $ 58,160
106.1 Alex’s Engineering Co. 0
106.2 Wildcat Services 0
106.3 Easy Leasing 0
106.4 IFM Co. 3,000
106.5 Liu Corp. 0
106.6 Gomez Co. 2,668
106.7 Delta Co. 0
106.8 KC, Inc. 0
106.9 Dream, Inc. 0
119 Merchandise inventory 0
126 Computer supplies 580
128 Prepaid insurance 1,665
131 Prepaid rent 825
163 Office equipment 8,000
164 Accumulated depreciation—Office equipment $ 400
167 Computer equipment 20,000
168 Accumulated depreciation—Computer equipment 1,250
201 Accounts payable 1,100
210 Wages payable 500
236 Unearned computer services revenue 1,500
307 Common stock 83,000
318 Retained earnings 7,148
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, A. 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, 2014. Its transactions for January through March follow:

Jan. 4
The company paid cash to Lyn Addie for five days’ work at the rate of $125 per day. Four of the five days relate to wages payable that were accrued in the prior year.
5 Adria Lopez invested an additional $25,000 cash in the company in exchange for more common stock.
7
The company purchased $5,800 of merchandise from Kansas Corp. with terms of 1/10, n/30, FOB shipping point, invoice dated January 7.
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 $5,500, 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 destination, 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.
Feb. 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’s Engineering Co. for fees billed on January 11.
15 The company paid $4,800 cash for dividends.
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 Adria Lopez for business automobile mileage (600 miles at $0.32 per mile).
Mar. 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 Adria 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 a $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 totals $704.
QUESTIONS:
1.
Prepare journal entries to record each of the January through March transactions.

Jan. 4
Paid cash to Lyn Addie for five days’ work at the rate of $125 per day. Four of the five days relate to wages payable that were accrued in the prior year.

Jan.5 Adria Lopez invested an additional $25,000 cash in the company in exchange for more common stock.

7
The company purchased $5,800 of merchandise from Kansas Corp. with terms of 1/10, n/30, FOB shipping point, invoice dated January 7.

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 $5,500, 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.

24The 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 destination, 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.

Feb. 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’s Engineering Co. for fees billed on January 11.

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 Adria Lopez for business automobile mileage (600 miles at $0.32 per mile).

Mar. 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

31The company reimbursed Adria Lopez for business automobile mileage (400 miles at $0.32 per mile).

Journal Entries Description No. Debit Credit

Jan. 4
Paid cash to Lyn Addie for five days’ work at the rate of $125 per day. Four of the five days relate to wages payable that were accrued in the prior year.

Wages Expenses 623 $125 Wages Payable ($125 x 4) 210 $500 Cash 101 $625

Jan.5 Adria Lopez invested an additional $25,000 cash in the company in exchange for more common stock.

Cash 101 $25,000 Adria Lopez Capital 307 $25,000

7
The company purchased $5,800 of merchandise from Kansas Corp. with terms of 1/10, n/30, FOB shipping point, invoice dated January 7.

Merchandise Inventory $5,800 Accounts Payable $5,800

9 The company received $2,668 cash from Gomez Co. as full payment on its account.

Cash 101 $2,668 Accounts Receivable Gomez .co 106.6 $2,668

11
The company completed a five-day project for Alex’s Engineering Co. and billed it $5,500, which is the total price of $7,000 less the advance payment of $1,500.

Accounts Receivable Alex's Eng.co. 106.1 $5,500 Unearned computer service revenue 236 $1,500 Computer Service Revenue 406 $7,000

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.

Accounts Receivable Lieu corp. 106.5 $5,200 Sales 413 $5,200 Cost of Good Sold 502 $3,560 Merchandise Inventory 119 $3,560

15
The company paid $600 cash for freight charges on the merchandise purchased on January 7.

Merchandise Inventory 119 $600 Cash 101 $600

16 The company received $4,000 cash from Delta Co. for computer services provided.

Cash 101 $4,000 Computer Service Revenue 403 $4,000

17
The company paid Kansas Corp. for the invoice dated January 7, net of the discount.

Accounts Payable 201 $5,800 Merchandise Inventory (5800 x 1%) 119 $58 Cash 101 $5,742

Sales Return and allowances 404 $500 Accounts Receivable Lieu corp. 106.4 $500

22
The company received the balance due from Liu Corp., net of both the discount and the credit for the returned merchandise.

Cash 101 $4,653 sales discounts (4700 x 1%) 415 $47 Accounts Receivable Lieu corp.($5200 -$500) 106.4 $4,700

24The 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

Accounts Payable 201 $496 Merchandise Inventory 119 $496

26
The company purchased $9,000 of merchandise from Kansas Corp. with terms of 1/10, n/30, FOB destination, invoice dated January 26.

Merchandise Inventory 119 $9,000 Accounts Payable 201 $9,000

26
The company sold merchandise with a $4,640 cost for $5,800 on credit to KC, Inc., invoice dated January 26.

Accounts Receivable KC inc. 106.8 $5,800 Sales 413 $5,800 Cost of Good Sold 502 $4,640 Merchandise Inventory 119 $4,640

29
The company received a $496 credit memorandum from Kansas Corp. concerning the merchandise returned on January 24.

No entry

31 The company paid cash to Lyn Addie for 10 days’ work at $125 per day.

Wages Expenses 623 $12,500 Cash 101 $12,500

Feb. 1
The company paid $2,475 cash to Hillside Mall for another three months’ rent in advance.

Prepaid Rent 131 $2,475 Cash 101 $2,475

3
The company paid Kansas Corp. for the balance due, net of the cash discount, less the $496 amount in the credit memorandum.

Accounts Payable ($9000-496) 201 $8,504 Merchandise Inventory (9000 x 1%) 119 $90 Cash 101 $8,414

5
The company paid $600 cash to the local newspaper for an advertising insert in today’s paper.

Advertising 655 $600 Cash 101 $600

11 The company received the balance due from Alex’s Engineering Co. for fees billed on January 11.

Cash 101 $5,500 Accounts Recivable - Alex eng.co 106.1 $5,500 15 The company paid $4,800 cash for dividends. Dividends 319 $4,800 Cash 101 $4,800

23
The company sold merchandise with a $2,660 cost for $3,220 on credit to Delta Co., invoice dated February 23.

Accounts Recivable - Delta co. 106.7 $3,220 Sales 413 $3,220 Cost of Good Sold 502 $2,660 Merchandise Inventory 119 $2,660

26 The company paid cash to Lyn Addie for eight days’ work at $125 per day.

Wages Expenses ($125 x 8) 623 $1,000 Cash 101 $1,000

27
The company reimbursed Adria Lopez for business automobile mileage (600 miles at $0.32 per mile).

Mileage Expense 676 $192 Cash 101 $192

Mar. 8
The company purchased $2,730 of computer supplies from Harris Office Products on credit, invoice dated March 8

Computer supplies 126 $2,730 Accounts Payable 201 $2,730

9
The company received the balance due from Delta Co. for merchandise sold on February 23.

Cash 101 $3,220 Accounts receivable - Delta Co. 106.7 $3,220

11 The company paid $960 cash for minor repairs to the company’s computer.

Repair Expenses 684 $960 Cash 101 $960

16 The company received $5,260 cash from Dream, Inc., for computing services provided.

Cash 101 $5,260 Computer service Revenue 403 $5,260

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.

Accounts Payable ($2730 +1100) $3,830 Cash $3,830

24 The company billed Easy Leasing for $8,900 of computing services provided.

Accounts Recivable - Easy Leasing. 106.7 $8,900 Computer service Revenue 403 $8,900

25
The company sold merchandise with a $2,002 cost for $2,800 on credit to Wildcat Services, invoice dated March 25.

Accounts receivable - wildcat 106.2 $2,800 Sales 413 $2,800 Cost of Good Sold 502 $2,002 Merchandise Inventory 119 $2,002

30
The company sold merchandise with a $1,100 cost for $2,220 on credit to IFM Company, invoice dated March 30

Accounts receivable - IFM co. 106.4 $2,220 Sales 413 $2,220 Cost of Good Sold 502 $1,100 Merchandise Inventory 119 $1,100

31The company reimbursed Adria Lopez for business automobile mileage (400 miles at $0.32 per mile).

Mileage Expense 676 $128.0 Cash 101 $128.0

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