Closing the accounts
The following data were taken from the records of Valley Company. Except as otherwise indicated, all balances are as of December 31, 2011, before the closing entries had been recorded.
Consulting revenue | $14,500 |
Cash | 28,500 |
Cash received from common stock issued during 2011 | 4,500 |
Travel expense | 1,500 |
Dividends | 8,000 |
Cash flow from investing activities | 3,400 |
Rent expense | 2,100 |
Payment to reduce debt principal | 8,000 |
Retained earnings, January 1,2011 | 19,000 |
Salary expense | 6,900 |
Cash flow from operating activities | 1,500 |
Common stock, December 31,2011 | 10,000 |
Other operating expenses | 1,900 |
Required
a. Identify the accounts that should be closed to the Retained Earnings account.
b. Prepare the income statement that Valley would include in its 2011 annual report.
c. Determine the Retained Earnings account balance at December 31, 2011. Explain how the Company could pay cash dividends in excess of the amount of net income earned in 2011.
d. Name the stages of the accounting cycle in the order in which they normally occur.
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