Chapter 5: Q16SE (page 299)

D & T Printing Supplies’ accounting records include the following accounts at December 31, 2018.
Purchases $ 185,200 Accumulated Depreciation—Building $ 21,000
Accounts Payable 7,700 Cash 18,100
Rent Expense 8,600 Sales Revenue 257,800
Building 42,800 Depreciation Expense—Building 4,700
Common Stock 55,000 Dividends 26,500
Retained Earnings 30,400 Interest Expense 1,900
Merchandise Inventory,
Beginning 119,000 Merchandise Inventory,
Ending 102,100
Notes Payable 11,300 Purchase Returns and Allowances 20,700
Purchase Discounts 2,900
Requirements
1. Journalize the required closing entries for D & T Printing Supplies assuming that D & T uses the periodic inventory system.
2. Determine the ending balance in the Retained Earnings account.

Short Answer

Expert verified

The closing balance in the retained earnings accounts is$123,000.

Step by step solution

Definition of Retained Earnings

In accounting, Retained earnings refer to the amount of profit that a business entity retains to meet future contingencies and other expenses. It is reported in the liabilities section of the positional statement.

Preparation of closing entries

Date	Accounts and Explanation	Debit ($)	Credit ($)
Dec 31	Sales revenue	257,800
	Purchase returns and allowance	20,700
	Purchase discounts	2,900
	Merchandise inventory (ending)	102,100
	Income summary		383,500
	(To close the revenue and other accounts containing credit balance)
Dec 31	Income summary	319,400
	Purchases		185,200
	Merchandise inventory (beginning)		119,000
	Rent expenses		8,600
	Depreciation expense-building		4,700
	Interest expenses		1,900
	(To close the expenses and other debit balance accounts)
Dec 31	Income summary (383500-319400)	64,100
	Capital		64,100
	(To close income summary account)
Dec 31	Capital	26,500
	Dividends		26,500
	(To close the withdrawals)

Computation of ending retained earnings balance

Particulars	Amounts ($)
Retained earnings (Opening balance)	30,400
Add: Common stock	55,000
Add: Income	64,100
Less: Dividends	(26,500)
Retained earnings (Closing balance)	123,000