Question

The general ledger of Red Storm Cleaners at January 1, 2021, includes the following account balances:

Accounts	Debits				Credits
Cash	$	20,000
Accounts Receivable		8,000
Supplies		4,000
Equipment		15,000
Accumulated Depreciation					$	5,000
Salaries Payable						7,500
Common Stock						25,000
Retained Earnings						9,500
Totals	$	47,000			$	47,000

The following is a summary of the transactions for the year:

1.		March		12		Provide services to customers, $60,000, of which $21,000 is on account.
2.		May		2		Collect on accounts receivable, $18,000.
3.		June		30		Issue shares of common stock in exchange for $6,000 cash.
4.		August		1		Pay salaries of $7,500 from 2020 (prior year).
5.		September		25		Pay repairs and maintenance expenses, $13,000.
6.		October		19		Purchase equipment for $8,000 cash.
7.		December		30		Pay $1,100 cash dividends to stockholders.

11. Prepare a post-closing trial balance.

X Answer is complete but not entirely correct. RED STORM CLEANERS Credit $ Post-Closing Trial Balance December 31, 2021 Accounts Debit Cash $ 34,900 X Accounts Receivable 11,000 Supplies 1,200 Equipment 23,000 Accumulated Depreciation Salaries Payable Common Stock Retained Earnings Dividends 1,100 X Service Revenue Salaries Expense 19,600 X Repairs and Maintenance Expense 13,000 X Depreciation Expense 5,000 X Supplies Expense 2,800 X Totals $ 111,600 10,000 1,100 X 31,000 9,500 X 60,000 X $ 111,600

Answer 1

RED STORM CLEANERS Post-Closing Trial Balance December 31, 2021 Account Titles Debit Cash $53,400 Accounts Receivable $11,000 Supplies $4,000 Equipment $23,000 Accumulated Depreciation Common Stock Retained Earnings Totals $91,400 Credit ($20,000 + ($60,000 - $21,000) + $18,000 + $6,000 - $7,500 - $13,000 - $8,000 - $1,100] [$8,000 + $21,000 - $18,000] [No change] ($15,000 + $8,000] $5,000 (No change) $31,000 ($25,000 + $6,000] $55,400 ($9,500+$60,000-($13,000+$1,100)] $91,400

NOTE: $7,500 paid towards salaries of 2020 is adjusted against balance in salaries payable account and so it is not deducted from retained earnings. Closing entries are those entries recorded at the last day of reporting period to close revenue and expense accounts to retained earnings using a temperary account called income summary. When closing entries are recorded for revenues, Income Summary account shall be credited and Revenue accounts shall be debited; Similarly, when closing entries are recorded for expenses, Income Summary account shall be debited and Expense accounts shall be credited. Finally, balance in Income Summary account will represent either Net income or Net loss for the reporting period which shall be closed to Retained Earnings. Therefore, it is clear that dividends account shall be closed to retained earnings whereas other balance sheet related accounts shall not be closed. As a result, ledger accounts of balance sheet items such as assets, liabilities and shareholders' equity only will have ending balance. Balance in both revenue and expense accounts would be zero after recording closing entries.