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Chapter 4: Q3TI-1 (page 199)

Benson Auto Repair had the following account balances after adjustments. Assume all accounts had normal balances.

Cash \( 4,000 Common Stock \) 20,000

Accounts Receivable 3,200 Retained Earnings, January 1 15,700

Prepaid Rent 1,900 Dividends 2,100

Office Supplies 3,000 Service Revenue 1,600

Equipment 34,800 Depreciation Expense鈥擡quipment 300

Accumulated Depreciation鈥擡quipment 1,600 Salaries Expense 800

Accounts Payable 5,400 Rent Expense 500

Notes Payable (long-term) 7,000 Utilities Expense 600

Supplies Expense 100

14. Prepare the closing entries for Benson at December 31.

15. What is the balance of Retained Earnings after closing entries have been recorded? (Use a T-account to determine the balance.)

Short Answer

Expert verified

Closing entries are as follows:

Date

Accounts and Explanation

Debit

Credit

Dec. 31

Service Revenue

$1600

Income Summary

$1,600

To close revenue.

Dec. 31

Income Summary

$2,300

Rent Expense

$500

Salaries Expense

$800

Supplies Expense

$100

Utilities Expense

$600

Depreciation Expense鈥擡quipment

$300

To close expenses.

Dec. 31

Retained Earnings

$700

Income Summary

$700

To close Income Summary.

Dec. 31

Retained Earnings

$2,100

Dividends

$2,100

To close Dividends.

Step by step solution

01

Explanation on Retained Earnings

Retained earnings are the sum total of previous profits of the previous years, which are used to pay the dividends.

02

Calculation of Net Loss

NetLoss=Revenues-Expenses=$1,600-$2,300=$700

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Most popular questions from this chapter

The steps of the accounting cycle are presented below. Identify the correct order of the steps.

a. Journalize and post the closing entries.

b. Start with the beginning account balances.

c. Prepare the financial statements.

d. Compute the unadjusted balance in each account, and prepare the unadjusted trial balance.

e. Journalize and post adjusting entries.

f. Enter the unadjusted trial balance on the worksheet, and complete the worksheet (optional).

g. Prepare the adjusted trial balance.

h. Analyze and journalize transactions as they occur.

i. Post journal entries to the accounts.

j. Prepare the post-closing trial balance.

Answer the following questions: Requirements 1. What type of normal balance does the Retained Earnings account have鈥攄ebit or credit? 2. Which type of income statement account has the same type of balance as the Retained Earnings account? 3. Which type of income statement account has the opposite type of balance as the Retained Earnings account? 4. What do we call the difference between total debits and total credits on the income statement section of the worksheet?

For each account listed, identify whether the account would be included on a post-closing trial balance. Signify either Yes (Y) or No (N). a. Office Supplies b. Interest Expense c. Retained Earnings d. Dividends e. Service Revenue f. Accumulated Depreciation鈥擣urniture g. Rent Expense h. Unearned Revenue i. Accounts Payable

Review the steps in the accounting cycle, and answer the following questions: 1. What is the first step? 2. Are any steps optional? 3. Which steps are completed throughout the period? 4. Which steps are completed only at the end of the period? 5. What is the last step in the accounting cycle?

The adjusted trial balance of Melanie O鈥橫allie Dance Studio Company follows:MELANIE O'MALLIE DANCE STUDIO COMPANY Trial Balance August 31, 2018 Account Title Prepaid Rent Cash Debit Credit Office Supplies Equipment Accumulated Depreciation鈥擡quipment Accounts Payable Salaries Payable Unearned Revenue Notes Payable (long-term) Dividends Common Stock Retained Earnings Service Revenue Salaries Expense Rent Expense Depreciation Expense鈥擡quipment Supplies Expense Utilities Expense Balance \( 16,000 \) 76,100 \( 76,100 100 \) 5,700 4,800 49,000 5,400 18,100 5,000 18,000 19,000 1,100 1,100 3,600 1,800 1,500 500 400 1,100 Requirements 1. Prepare the classified balance sheet of Melanie O鈥橫allie Dance Studio Company at August 31, 2018. Use the report form. You must compute the ending balance of Retained Earnings. 2. Compute O鈥橫allie鈥檚 current ratio at August 31, 2018. One year ago, the current ratio was 1.76. Indicate whether O鈥橫allie鈥檚 ability to pay current debts has improved, deteriorated, or remained the same.
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