Question

3
required:
1 - a. prepare an income statement for the year ended december 31, 2027.
1 - b. prepare a classified balance sheet as of december 31, 2027

1. prepare the necessary closing entries on december 31, 2027

complete this question by entering your answers in the tabs below.
req 1a req 1b req 2
prepare the necessary closing entries on december 31, 2027.
note: if no entry is required for a transaction or event, select “no journal entry required” in the first account field.
view transaction list
journal entry worksheet
1 2
record the entry to close the revenue accounts.
note: enter debits before credits.
date general journal debit credit
december 31, 2027

Explanation:

Step1: Prepare income statement

Income statement formula: Net Income = Sales Revenue - Cost of Goods Sold - Salaries Expense - Rent Expense - Depreciation Expense - Interest Expense - Advertising Expense.
Sales Revenue = 438,000, Cost of Goods Sold = 109,500, Salaries Expense = 36,000, Rent Expense = 58,000, Depreciation Expense = 3,000, Interest Expense = 4,600, Advertising Expense = 1,643,100 - 438,000 - 109,500 - 36,000 - 58,000 - 3,000 - 4,600 = 1,004,000.
Net Income = 438,000 - 109,500 - 36,000 - 58,000 - 3,000 - 4,600 - 1,004,000=-777,100.

Step2: Prepare classified balance - sheet

Classified balance - sheet has two main sections: Assets and Liabilities + Equity.
Assets: Cash = 31,400, Accounts Receivable = 12,000, Prepaid Rent = 48,000, Inventory = 500,000, Office Equipment = 242,000, Accumulated Depreciation = - 54,000. Total Assets = 31,400+12,000 + 48,000+500,000+242,000 - 54,000 = 779,400.
Liabilities: Accounts Payable = 7,300, Notes Payable (due in six months) = 1,800, Salaries Payable = 400,000, Interest Payable = 140,000. Total Liabilities = 7,300+1,800+400,000+140,000 = 549,100.
Equity: Common Stock = 734,000, Retained Earnings (from income statement) = - 777,100. Total Equity = 734,000-777,100=-43,100.

Step3: Prepare closing entries

1. Close revenue accounts:

Debit Sales Revenue 438,000; Credit Income Summary 438,000.

1. Close expense accounts:

Debit Income Summary 1,145,100 (109,500 + 36,000+58,000 + 3,000+4,600+1,004,000); Credit Cost of Goods Sold 109,500, Credit Salaries Expense 36,000, Credit Rent Expense 58,000, Credit Depreciation Expense 3,000, Credit Interest Expense 4,600, Credit Advertising Expense 1,004,000.

1. Close Income Summary to Retained Earnings:

Debit Retained Earnings 707,100 (1,145,100 - 438,000); Credit Income Summary 707,100.

Answer:

1 - a.

Income Statement	Amount
Cost of Goods Sold	109,500
Salaries Expense	36,000
Rent Expense	58,000
Depreciation Expense	3,000
Interest Expense	4,600
Advertising Expense	1,004,000
Net Income	- 777,100

1 - b.

Classified Balance Sheet	Amount
Cash	31,400
Accounts Receivable	12,000
Prepaid Rent	48,000
Inventory	500,000
Office Equipment	242,000
Accumulated Depreciation	- 54,000
Total Assets	779,400
Liabilities
Accounts Payable	7,300
Notes Payable (due in six months)	1,800
Salaries Payable	400,000
Interest Payable	140,000
Total Liabilities	549,100
Equity
Common Stock	734,000
Retained Earnings	- 777,100
Total Equity	- 43,100

2.

Date	General Journal	Debit	Credit
	Income Summary		438,000
December 31, 2027	Income Summary	1,145,100
	Cost of Goods Sold		109,500
	Salaries Expense		36,000
	Rent Expense		58,000
	Depreciation Expense		3,000
	Interest Expense		4,600
	Advertising Expense		1,004,000
December 31, 2027	Retained Earnings	707,100
	Income Summary		707,100