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Chapter 4: Q23E (page 225)

McGregor Insurance Agency started the year with a beginning Retained Earnings balance of \(27,500. During the year, McGregor Insurance Agency earned \)34,000 of Service Revenue and incurred \(23,500 of various expenses. Dividends of \)12,000 from the business were paid to stockholders. After the closing entries are recorded and posted, what will be the balance of Retained Earnings?

Short Answer

Expert verified

Ending balance of retained earnings equals to $26,000

Step by step solution

01

Calculation of net income

Net income is calculated as follows

NetIncome=TotalRevenues-TotalExpenses=$34,000-$23,500=$10,500

02

Calculation of ending balance of retained earnings

Ending balance of retained earnings is calculated as follows:

EndingBalance=BeginningBalance+NetIncome-Dividends=$27,500+$10,500-$12,000=$26,000

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Most popular questions from this chapter

The adjusted trial balance of Rocket Real Estate Appraisal at June 30, 2018, follows: ROCKET REAL ESTATE APPRAISAL Adjusted Trial Balance June 30, 2018Account Title Office Supplies Cash Debit Credit Accounts Receivable Prepaid Insurance Building Accumulated Depreciation—Building Land Accounts Payable Interest Payable Salaries Payable Unearned Revenue Notes Payable (long-term) Common Stock Dividends Retained Earnings Service Revenue Insurance Expense Salaries Expense Supplies Expense Interest Expense Balance \( 5,000 \) 178,100 \( 178,100 12,800 \) 25,200 71,000 8,000 1,000 2,100 37,000 25,800 5,500 1,600 1,700 18,700 5,000 33,000 48,100 4,100 32,000 600 8,000 2,900 7,100 Utilities Expense Depreciation Expense—Building Total . Requirements 1. Prepare the company’s income statement for the year ended June 30, 2018. 2. Prepare the company’s statement of retained earnings for the year ended June 30, 2018. 3. Prepare the company’s classified balance sheet in report form at June 30, 2018. 4. Journalize the closing entries. 5. Open the T-accounts using the balances from the adjusted trial balance, and post the closing entries to the T-accounts. 6. Prepare the company’s post-closing trial balance at June 30, 2018.

This comprehensive problem is a continuation of Comprehensive Problem 1. Murphy Delivery Service has completed closing entries and the accounting cycle for 2018. The business is now ready to record January 2019 transactions. Jan. 3 Collected \(200 cash from customer on account. 5 Purchased office supplies on account, \)1,000. 12 Performed delivery services for a customer and received \(3,000 cash. 15 Paid employee salary, including the amount owed on December 31, \)4,100. 18 Performed delivery services on account, \(1,350. 20 Paid \)300 on account. 24 Purchased fuel for the truck, paying \(200 cash. 27 Completed the remaining work due for Unearned Revenue. 28 Paid office rent, \)2,200, for the month of January. 30 Collected \(3,000 in advance for delivery service to be performed later. 31 Cash dividends of \)1,500 were paid to stockholders. Requirements 1. Record each January transaction in the journal. Explanations are not required. 2. Post the transactions in the T-accounts. Don’t forget to use the December 31, 2018, ending balances as appropriate. 3. Prepare an unadjusted trial balance as of January 31, 2019. 4. Prepare a worksheet as of January 31, 2019 (optional). 5. Journalize the adjusting entries using the following adjustment data and also by reviewing the journal entries prepared in Requirement 1. Post adjusting entries to the T-accounts. CHAPTER 4 246 chapter 4 Adjustment data: a. Office Supplies on hand, \(600. b. Accrued Service Revenue, \)1,800. c. Accrued Salaries Expense, $500. d. Prepaid Insurance for the month has expired. e. Depreciation was recorded on the truck for the month. 6. Prepare an adjusted trial balance as of January 31, 2019. 7. Prepare Murphy Delivery Service’s income statement and statement of retained earnings for the month ended January 31, 2019, and the classified balance sheet on that date. On the income statement, list expenses in decreasing order by amount—that is, the largest expense first, the smallest expense last. 8. Calculate the following ratios as of January 31, 2019, for Murphy Delivery Service: return on assets, debt ratio, and current ratio.

For each account listed, identify whether the account would appear in either the income statement section or the balance sheet section of the worksheet. Assuming normal balances, identify if the account would be recorded in the debit (DR) or credit (CR) column.

13. Accumulated Depreciation—Building

The adjusted trial balance of Bradley Irrigation System at December 31, 2018, follows: BRADLEY IRRIGATION SYSTEM Adjusted Trial Balance December 31, 2018 Account Title Office Supplies Cash Debit Credit Accounts Receivable Prepaid Insurance Building Accumulated Depreciation—Building Equipment Accumulated Depreciation—Equipment Accounts Payable Interest Payable Salaries Payable Unearned Revenue Notes Payable (long-term) Common Stock Dividends Retained Earnings Service Revenue Insurance Expense Salaries Expense Supplies Expense Balance \( 12,000 \) 202,100 \( 202,100 21,000 \) 25,300 57,300 40,700 3,500 2,000 1,800 13,000 51,000 28,300 4,700 6,800 21,000 3,200 56,000 32,000 1,200 16,200 1,400 2,000 1,200 2,600 Interest Expense Depreciation Expense—Building Depreciation Expense—Equipment Total Requirements 1. Prepare the company’s income statement for the year ended December 31, 2018. 2. Prepare the company’s statement of retained earnings for the year ended December 31, 2018. 3. Prepare the company’s classified balance sheet in report form at December 31, 2018. 4. Journalize the closing entries for Bradley Irrigation System. 5. Compute the company’s current ratio at December 31, 2018. At December 31, 2017, the current ratio was 1.7. Did the company’s ability to pay current debts improve or deteriorate, or did it remain the same?

Dalton Hair Stylists’s adjusted trial balance follows. Prepare Dalton’s income statement for the year ended December 31, 2018. DALTON HAIR STYLISTS Adjusted Trial Balance December 31, 2018 Account Title Office Supplies Cash Debit Credit Accounts Receivable Equipment Accumulated Depreciation—Equipment Accounts Payable Interest Payable Notes Payable Common Stock Dividends Service Revenue Rent Expense Supplies Expense Depreciation Expense—Equipment Interest Expense Balance \( 1,300 \) 36,150 \( 36,150 400 \) 2,200 3,100 500 1,400 16,150 13,800 3,900 850 2,200 2,300 1,500 1,800 20,900 Total.
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