Question

Catena's Marketing Company has the following adjusted trial balance at the end of the current year. Cash dividends of $630 were declared at the end of the year, and 550 additional shares of common stock ($0.10 par value per share) were issued at the end of the year for $2,930 in cash (for a total at the end of the year of 850 shares). These effects are included below:

Catena’s Marketing Company
Adjusted Trial Balance
End of the Current Year
	Debit				Credit
Cash	$	1,410
Accounts receivable		2,240
Interest receivable		230
Prepaid insurance		1,680
Long-term notes receivable		2,980
Equipment		16,100
Accumulated depreciation				$	3,180
Accounts payable					2,300
Dividends payable					630
Accrued expenses payable					3,850
Income taxes payable					2,580
Unearned rent revenue					410
Common Stock (850 shares)					85
Additional paid-in capital					3,595
Retained earnings					3,500
Sales revenue					37,980
Interest revenue					300
Rent revenue					780
Wages expense		20,300
Depreciation expense		1,750
Utilities expense		300
Insurance expense		770
Rent expense		8,700
Income tax expense		2,730
Total	$	59,190		$	59,190

Prepare the closing entry at the end of the current year. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Record the closing entry at the end of the current year. Note: Enter debits before credits. Transaction General Journal Debit Credit

Answer 1

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 Reveue 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.

CREDIT DEBIT $37,980 $300 $780 $39,060 $34,550 | DATE ACCOUNT TITLES AND EXPLANATION Dec. 31 Sales revenue Interest revenue Rent revenue Income Summary (To zero out revenue accounts) Dec. 31 Income Summary Wages expense Depreciation expense Utilities expense Insurance expense Rent expense Income tax expense (To zero out expense accounts) Dec. 31 Income Summary Retained Earnings (To transfer profit to Retained Earnings) Dec. 31 Retained Earnings Dividends (To close dividends to Retained Earnings) $20,300 $1,750 $300 $770 $8,700 $2,730 $4,510 $4,510 [$39060 - $34550] (Diff. between revenues and expenses) | --> As total revenue is more than expenses, it is net profit. $630 $630