Question

Problem 4-03A The Ivanhoe Hotel opened for business on May 1, 2022. Here is its trial balance before adjustment on May 31.

IVANHOE HOTEL Trial Balance May 31, 2022 Debit Credit Cash $ 2,613 Supplies 2,600 Prepaid Insurance 1,800 Land 15,113 Buildings 70,000 Equipment 16,800 Accounts Payable $ 4,813 Unearned Rent Revenue 3,300 Mortgage Payable 36,000 Common Stock 60,113 Rent Revenue 9,000 Salaries and Wages Expense 3,000 Utilities Expense 800 Advertising Expense 500 $113,226 $113,226

Other data: 1. Insurance expires at the rate of $360 per month. 2. A count of supplies shows $1,180 of unused supplies on May 31. 3. (a) Annual depreciation is $2,760 on the building. (b) Annual depreciation is $2,160 on equipment. 4. The mortgage interest rate is 5%. (The mortgage was taken out on May 1.) 5. Unearned rent of $2,670 has been earned. 6. Salaries of $710 are accrued and unpaid at May 31.

Identify which accounts should be closed on May 31.

Cash		select an option ClosedNot Closed
Supplies		select an option ClosedNot Closed
Prepaid Insurance		select an option ClosedNot Closed
Land		select an option Not ClosedClosed
Buildings		select an option ClosedNot Closed
Equipment		select an option Not ClosedClosed
Accounts Payable		select an option Not ClosedClosed
Unearned Rent Revenue		select an option Not ClosedClosed
Mortgage Payable		select an option Not ClosedClosed
Common Stock		select an option Not ClosedClosed
Rent Revenue		select an option ClosedNot Closed
Salaries and Wages Expense		select an option ClosedNot Closed
Utilities Expense		select an option Not ClosedClosed
Advertising Expense		select an option Not ClosedClosed
Interest Expense		select an option ClosedNot Closed
Insurance Expense		select an option Not ClosedClosed
Supplies Expense		select an option Not ClosedClosed
Depreciation Expense		select an option ClosedNot Closed

Answer 1

Closing entries are the entries passed for closing the temporary accounts (Revenue and Expenses Accounts) at the end of the accounting period. They are done after the financial statement for the accounting year has been prepared. This is done make the temporary accounts zero so that these temporary accounts begins with zero balance in the next accounting period. Closing credit/debit entry is passed in all temporary accounts having debit balance/credit balance before passing the closing entry. The credit/debit amount entered is equal the debit/credit balance prior passing the closing entry. The net amount of closing entries is the Net Income /(Loss) for the period which is ultimately transferred retained earnings. Accounts Account Type Cash Asset Not Closed Supplies Asset Not Closed Prepaid Insurance Asset Not Closed Land Asset Not Closed Buildings Asset Not Closed Equipment Asset Not Closed Accounts Payable Liability Not Closed Unearned Rent Revenue Liability Not Closed Mortgage Payable Liability Not Closed Common Stock Equity Not Closed Rent Revenue Revenue Closed Salaries and Wages Expense Expense Closed Utilities Expense Expense Closed Advertising Expense Expense Closed Interest Expense Expense Closed Insurance Expense Expense Closed Supplies Expense Expense Closed Depreciation Expense Expense Closed