Question

1. closing entries

assume you are given the following information:

1. service revenue for the period you are preparing the financial statements for totaled $215,000. rent revenue was $45,000.
2. supplies expense for the same period totaled $120,000. salaries and wages expense was $85,000.
3. dividends paid were $3,575.

prepare the closing journal entries and compute the ending balance in retained earnings. assume the beginning balance of retained earnings was $50,000.

Explanation:

Step1: Calculate total revenues

Total revenues = Service revenue + Rent revenue = $215000 + 45000=\$260000$

Step2: Calculate total expenses

Total expenses = Supplies expense+Salaries and wages expense = $120000 + 85000=\$205000$

Step3: Calculate net income

Net income = Total revenues - Total expenses = $260000- 205000=\$55000$

Step4: Prepare closing - entry for revenues

Debit: Service Revenue $215000$, Rent Revenue $45000$; Credit: Income Summary $260000$

Step5: Prepare closing - entry for expenses

Debit: Income Summary $205000$; Credit: Supplies Expense $120000$, Salaries and Wages Expense $85000$

Step6: Prepare closing - entry for Income Summary to Retained Earnings

Debit: Income Summary $55000$; Credit: Retained Earnings $55000$

Step7: Prepare closing - entry for dividends

Debit: Retained Earnings $3575$; Credit: Dividends $3575$

Step8: Calculate ending balance of Retained Earnings

Ending balance of Retained Earnings=Beginning balance of Retained Earnings + Net income - Dividends = $50000+55000 - 3575=\$101425$

Answer:

Closing - entry for revenues:
Debit: Service Revenue $215000$, Rent Revenue $45000$
Credit: Income Summary $260000$

Closing - entry for expenses:
Debit: Income Summary $205000$
Credit: Supplies Expense $120000$, Salaries and Wages Expense $85000$

Closing - entry for Income Summary to Retained Earnings:
Debit: Income Summary $55000$
Credit: Retained Earnings $55000$

Closing - entry for dividends:
Debit: Retained Earnings $3575$
Credit: Dividends $3575$

Ending balance of Retained Earnings: $\$101425$