Question

Presented below is an adjusted trial balance for Shawn Company, at December 31, 2018. Cash $ 7,700 Accounts payable $10,000 Accounts receivable 20,000 Notes payable 9,000 Prepaid insurance 15,000 Accumulated depreciation—Equipment 14,000 Equipment 35,000 Service revenue 29,000 Depreciation expense 7,000 Common stock 10,000 Dividends 1,500 Retained earnings 14,000 Advertising expense 1,400 Unearned service revenue 16,000 Rent expense 800 Salaries and wages expense 12,000 Insurance expense 1,600 $102,000 $102,000

Question 5 Presented below is an adjusted trial balance for Shawn Company, at December 31, 2018. Cash Accounts receivable Prepaid insurance Equipment Depreciation expense Dividends Advertising expense Rent expense Salaries and wages expense Insurance expense $ 7,700 Accounts payable 20,000 Notes payable 15,000 Accumulated depreciation-Equipment 35,000 Service revenue 7,000 Common stock 1,500 Retained earnings 1,400 Unearned service revenue 800 12,000 1,600 $102,000 $10,000 9,000 14,000 29,000 10,000 14,000 16,000 $102,000 Prepare closing entries for December 31, 2018. (Credit account titles are automatically indented when amount is entered. Do not indent manually.) Debit Credit No. Account Titles and Explanation Dec. 31 (To close revenue account.) Dec. 31 (To close expense accounts) Dec. 31 (To close net income to retained earnings) Dec. 31 (To close dividends to retained earnings) Determine the balance in the Retained Earnings account after the entries have been posted. Balance in retained earnings

Answer 1

Answers

• Closing entries

Date	Accounts title	Debit	Credit
31-Dec	Service revenue	$29,000
	Income Summary		$29,000
	(to close revenues)
31-Dec	Income Summary	$22,800
	Depreciation expense		$7,000
	Advertising expense		$1,400
	Rent Expense		$800
	Salaries & Wages expense		$12,000
	Insurance expense		$1,600
	(to close expenses)
31-Dec	Income Summary	$6,200
	Retained earnings		$6,200
	(to close Income Summary - Net Income)
31-Dec	Retained earnings	$1,500
	Dividends		$1,500
	(to close dividend)

• Balance in Retained earnings = $ 14000 + $ 6200 net income - $ 1500 dividends = $ 18,700
• Concept

General Concepts regarding Closing entries:

#1:Temporary accounts, like Revenue accounts, have normal CREDIT balances, and hence they are closed by DEBITING the account.

#2:Temporary accounts, like Expense accounts or Contra revenue accounts, have normal DEBIT balances, and hence they are closed by CREDITING the account.

#3: In case of Net Income, Income Summary account has a CREDIT balance, and in order to close the Income Summary account, we DEBIT the account, and Credit Retained earnings/Owner's Capital

#4: In case of Net Loss, Income Summary account has a DEBIT balance, and in order to close the Income Summary account, we CREDIT the account, and Debit Retained earnings/Owner's Capital

#5: Dividend accounts have normal DEBIT balance, and are closed by CREDITING them, and debiting Retained earnings account.

#6: Drawings or Withdrawal account have a normal DEBIT balance, and hence closed by CREDITING the account, and debiting Owner's Capital account.