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: Calculate ending retained - earnings

Ending retained earnings = Beginning retained earnings+Net income - Dividends
= $50000 + 55000-3575=\$101425$

Step5: Closing journal entries

Close revenues to income - summary

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

Close expenses to income - summary

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

Close income - summary to retained earnings

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

Close dividends to retained earnings

Debit: Retained Earnings $3575
Credit: Dividends $3575

Answer:

Closing journal entries are shown above. Ending balance in retained earnings is $\$101425$