Closing Entries of an Unprofitable Company
Ferraro Consulting provides risk management services to individuals and to corporate clients. The company closes its temporary accounts once each year on December 31. The company recently issued the following income statement as part of its annual report:
FERRARO CONSULTING INCOME STATEMENT FOR THE YEAR ENED DCEMBER 31, 2011 | ||
Revenue: | ||
Consulting revenue—individual clients |
| $ 40,000 |
Consulting revenue—corporate clients |
| 160,000 |
|
| $200,000 |
Advertising expense | $16,000 |
|
Depreciation expense: computers | 24,000 |
|
Rent expense | 9,600 |
|
Office supplies expense . .• | 4,400 |
|
Travel expense | 57,800 |
|
Utilities expense | 3,300 |
|
Telephone and Internet expense | 1,900 |
|
Salaries expense | 155,500 |
|
Interest expense | 2,500 | 275,000 |
Net loss |
| $ (75,000) |
The firm's statement of retained earnings indicates that a $25,000 cash dividend was declared and paid in 2011.
a. Prepare the necessary closing entries on December 31,2011.
b. If the firm's Retained Earnings account had a $300,000 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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