Problem

Closing the accountsThe following data were taken from the records of Valley Company. Exce...

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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