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Chapter 3: Question 11BE (page 128)

BE3-11 (L04) Side Kicks has year-end account balances of Sales Revenue \(808,900, Interest Revenue \)13,500, Cost of Goods Sold \(556,200, Administrative Expenses \)189,000, Income Tax Expense \(35,100, and Dividends \)18,900. Prepare the year-end closing entries

Short Answer

Expert verified

The amount of income tax expenses is $35,100.

Step by step solution

01

Meaning of Closing Entries

Journal entries recorded by the business entity to close the temporary account are known as closing entries. These entries move balances to a permanent account, leading to zero balances in the temporary account.

02

Closing Entries

Date

Accounts and Explanation

Debit $

Credit $

Sales Revenue

$808,900

Interest Revenue

$13,500

Income Summary

$822,400

Income Summary

$780,300

Cost of Goods Sold

$556,200

Administrative Expenses

$189,000

Income Tax Expenses

$35,100

Income Summary

$42,100

Retained Earnings

$42,100

Retained Earnings

$18,900

Dividends

$18,900

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Most popular questions from this chapter

Jay Hawk, maintenance supervisor for Boston Insurance Co., has purchased a riding lawnmower and accessories to be used in maintaining the ground and corporate headquarters. He has sent the following information to the accounting department.

Cost of Mover and Accessories

\(4,000

Date Purchased

7/1/2017

Estimated Useful Life

5 yrs

Monthly Salary of Groundskeeper

\)1,100

Salvage Value

\(0

Estimated Annual Fuel Cost

\)150

Compute the amount of depreciation expense(related to the mover and accessories) that should be reported on Boston’s December 31, 2017, Income Statement. Assume straight-line depreciation.

Mason Advertising was founded in January 2013. Presented below are adjusted and unadjusted trial balances as of December 31, 2017.


MASON ADVERTISINGTRIAL BALANCEDECEMBER 31, 2017


UnadjustedAdjusted

Dr.

Cr.

Dr.

Cr.

Cash

\( 11,000

\) 11,000

Accounts Receivable

20,000

23,500

Supplies

8,400

3,000

Prepaid Insurance

3,350

2,500

Equipment

60,000

60,000

Accumulated Depreciation—Equipment

\( 28,000

\) 33,000

Accounts Payable

5,000

5,000

Interest Payable

–0–

150

Notes Payable

5,000

5,000

Unearned Service Revenue

7,000

5,600

Salaries and Wages Payable

–0–

1,300

Common Stock

10,000

10,000

Retained Earnings

3,500

3,500

Service Revenue

58,600

63,500

Salaries and Wages Expense

10,000

11,300

Insurance Expense

850

Interest Expense

350

500

Depreciation Expense

5,000

Supplies Expense

5,400

Rent Expense

4,000

4,000

\(117,100

\)117,100

\(127,050

\)127,050

Instructions

  1. Journalize the annual adjusting entries that were made. (Omit explanations.)
  2. Prepare an income statement and a statement of retained earnings for the year ending December 31, 2017, and an unclassified balance sheet at December 31.
  3. Answer the following questions.
    1. If the note has been outstanding 3 months, what is the annual interest rate on that note?
    2. If the company paid $12,500 in salaries and wages in 2017, what was the balance in Salaries and Wages Payable on December 31, 2016?

The adjusted trial balance of Anderson Cooper Co. as of December 31, 2017, contains the following.

ANDERSON COOPER CO.

ADJUSTED TRIAL BALANCE

DECEMBER 31, 2017

Dr.

Cr

Cash

\(19,472

Accounts Receivable

6,920

Prepaid Rent

2,280

Equipment

18,050

Accumulated Depreciation—Equipment

\) 4,895

Notes Payable

5,700

Accounts Payable

5,472

Common Stock

20,000

Retained Earnings

11,310

Dividend

3,000

Service Revenue

11,590

Salaries and Wages Expense

6,840

Rent Expense

2,260

Depreciation Expense

145

Interest Expense

83

Interest Payable

83

\(59,050

\)59,050

Instructions

(a) Prepare an income statement.

(b) Prepare a statement of retained earnings.

(c) Prepare a classified balance sheet.

When converting to IFRS, a company must:

(a) recast previously issued financial statements in accordance with IFRS.

(b) use GAAP in the reporting period but subsequently use IFRS.

(c) prepare at least three years of comparative statements.

(d) use GAAP in the transition year but IFRS in the reporting year.

On January 1, 2017, Norma Smith and Grant Wood formed a computer sales and service company in Soapsville, Arkansas, by investing \(90,000 cash. The new company, Arkansas Sales and Service, has the following transactions during January.

1. Pays \)6,000 in advance for 3 months’ rent of office, showroom, and repair space.

2. Purchases 40 personal computers at a cost of \(1,500 each, 6 graphics computers at a cost of \)2,500 each, and 25 printers at a cost of \(300 each, paying cash upon delivery

3. Sales, repair, and office employees earn \)12,600 in salaries and wages during January, of which \(3,000 was still payable at the end of January.

4. Sells 30 personal computers at \)2,550 each, 4 graphics computers for \(3,600 each, and 15 printers for \)500 each; \(75,000 is received in cash in January, and \)23,400 is sold on a deferred payment basis.

5. Other operating expenses of \(8,400 are incurred and paid for during January; \)2,000 of incurred expenses are payable at January 31.

Instructions

  1. Using the transaction data above, prepare (1) a cash-basis income statement and (2) an accrual-basis income statement for the month of January.
  2. Using the transaction data above, prepare (1) a cash-basis balance sheet and (2) an accrual-basis balance sheet as of January 31, 2017.
  3. Identify the items in the cash-basis financial statements that make cash-basis accounting inconsistent with the theory underlying the elements of financial statements.
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