Problem

Closing Entries of a Profitable CompanyGerdes Psychological Services, Inc., closes its tem...

Closing Entries of a Profitable Company

Gerdes Psychological Services, Inc., closes its temporary accounts once each year on December 31. The company recently issued the following income statement as part of its annual report:

GERDES PSYCHOLOGICAL SERVICES, INC.

INCOME STATEMENT

FOR THE YEAR ENDED DECEMBER 31, 2011

Revenue:

Counseling revenue

 

$225,000

Expenses:

 

 

Advertising expense

$1,800

 

Salaries expense

94,000

 

Office supplies expense

1,200

 

Utilities expense

850

 

Malpractice insurance expense

6,000

 

Office rent expense

24,000

 

Continuing education expense

2,650

 

Depreciation expense: fixtures

4,500

 

Miscellaneous expense

6,000

 

Income taxes expense

29,400

 

 

 

170,400

Net income

 

$ 54,600

The firm's statement of retained earnings indicates that a $6,000 cash dividend was declared and paid during 2011. '

a.         Prepare the necessary closing entries on December 31,2011.


b. If the firm's Retained Earnings account had a $92,000 balance on January 1,2011, at what amount should Retained Earnings be reported in the firm's balance sheet dated December 31,2011?

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