Closing the accounts
The following information was drawn from the accounting records of Spartan Company as of December 31, 2011, before the temporary accounts had been closed. The Cash balance was $6,000, and Notes Payable amounted to $2,500. The Company had revenues of $9,500 and expenses of $4,200. The Company’s Land account had an $8,000 balance. Dividends amounted to S800. There was $2,000 of common stock issued.
Required
a. Identify which accounts would be classified as permanent and which accounts would be classified as temporary.
b. Assuming that Spartan’s beginning balance (as of January 1. 2011) in the Retained Earnings account was $5,000, determine its balance after the temporary accounts were closed at the end of 2011.
c. What amount of net income would Spartan Company report on its 2011 income statement?
d. Explain why the amount of net income differs from the amount of the ending Retained Earnings balance.
e. What are the balances in the revenue, expense, and dividend accounts on January 1, 2012?
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