Question

Find income summary and retained earnings for CLOSING ENTRIES to complete closing process.

At June 30, 2017, the end of its most recent fiscal year, Bridgeport Computer Consultants' post-closing trial balance was as follows: Debit Credit 4,180 960 550 Cash Accounts receivable Supplies Accounts payable Unearned service revenue Common stock Retained earnings $ 320 900 2,900 1,570 $ 5,690 $5,690 The company underwent a major expansion in July. New staff was hired and more financing was obtained. Bridgeport conducted the following transactions during July 2017, and adjusts its accounts monthly July 1 Purchased equipment, paying $3,200 cash and signing a 2-year note payable for 16,000. The equipment has a 4-year useful life. The note has a 6% interest rate which is payable on the first day of each following month. Issued 16,000 shares of common stock for $ 40,000 cash. Paid $ 3,000 cash for a 12-month insurance policy effective July 1. Paid the first 2 (July and August 2017) months' rent for an annual lease of office space for $ 3,200 per month Paid $ 3,000 for supplies Visited client offices and agreed on the terms of a consulting project. Bridgeport will bill the client, Connor Productions, on the 20th of each month for services performed Collected $ 960 cash on account from Milani Brothers. This client was billed in June when Bridgeport performed the service Performed services for Fitzgerald Enterprises. This client paid $ 900 in advance last month. All services relating to this payment are now completed Paid $ 320 cash for a utility bill. This related to June utilities that were accrued at the end of June Met with a new client, Thunder Bay Technologies. Received $ 9,600 cash in advance for future services to be performed 2 3 3 6 9 10 13 14 16

Answer 1

Bridgeport Computer Consultant

Determination of income and expenses for income summary, retained earnings and closing entries:

Income Statement
For the month ended July 31
Service Revenue		$43,300
Expenses -
Depreciation Expense	$400
Interest Expense	$80
Insurance Expense	$250
Rent expense	$3,200
Supplies Expense	$1,000
Salaries expense	$17,600
Advertising Expense	$1,800
Utilities Expense	$640
Income Tax Expense	$960
Total Expenses		$25,930
Net Income		$17,370

• Income

Earned portion of unearned service revenue = $900

(for services rendered to Fitzgerald Enterprises, who paid in advance)

Customers billed for services performed        = $22,400

Revenue recognized for services to Thunder Bay = $8,000

Revenue received as Cash      = $12,000

Total Service Revenue for the month of July = $43,300

• Expenses

1. Depreciation Expense – Equipment                $400
2. Interest expense – accrued on note payable   $80      (16,000 x 6% x 1/12 = $80)
3. Insurance Expense – (3,000 x 1/12 = $250)   $250
4. Rent Expense                                                  $3,200
5. Supplies Expense                                            $1,000
6. Salaries Expense ($8,800 + accrued$8,800)   $17,600
7. Advertising Expense   (Payable)                     $1,800
8. Utility Expense (Payable)                               $640
9. Income Tax Expense (Payable)                       $960

Total Expenses$25,930

Closing Entries –

Date	Account Titles and Explanation	Ref. No.	Debit	Credit
31-Jul-17	Service Revenue		$43,300
	Income Summary			$43,300
	(To close service revenue to income summary account)
31-Jul-17	Income Summary		$25,930
	Depreciation Expense			$400
	Interest Expense			$80
	Insurance Expense			$250
	Rent expense			$3,200
	Supplies Expense			$1,000
	Salaries expense			$17,600
	Advertising Expense			$1,800
	Utilities Expense			$640
	Income Tax Expense			$960
	(To close all expenses accounts to income summary)
31-Jul-17	Income Summary		$17,370
	Retained Earnings			$17,370
	(To close net income to retained earnings)

Notes:

1. Issue of common shares does not affect the income statement.
2. Cash collected from customer is part of June month revenue and hence not included in July month Service Revenue.
3. Payment of $320 utility bill corresponds to the month of June and hence not an expense for July month.
4. Salaries and Wages expense = $8,800 paid + $8,800 accrued = $17,600
5. Advertising expense relates to the bill received for advertising services used during July, hence it is an expense.
6. Estimated utility expense for July = $640
7. Income tax expense (payable) for July   $960
8. Supplies expense = cost of supplies used = $1,000