Q11SE - Horngren'S Financial And Managerial Accounting

Question

The following balances appear on the books of Sarah Simmons Enterprises: Retained Earnings, \(29,600; Dividends, \)10,500; Income Summary, \(0; Service Revenue, \)24,500; Salaries Expense, \(6,200; Rent Expense, \)3,500; and Advertising Expense, $2,000. All accounts have normal balances. Requirements 1. Open a T-account for each account, and insert its adjusted balance as given (denote as Adj. Bal.) at December 31. 2. Post the closing entries to the accounts, denoting posted amounts as Clos. 3. Compute the ending balance of Retained Earnings.

Step-by-Step Solution

Answer

(1) T accounts are prepared in Step 1. 

(2) Closing entries are posted in Step 2.

(3) Ending balance of Retained Earnings equals $31,900.

Step 1: T-account of each account

T-accounts are as follows: 

Retained Earnings
		$29,600	Adj.Bal.

Dividends
Adj. Bal.	$10,500

Income Summary

Service Revenue
		$24,500	Adj.Bal.

Salaries Expense
Adj. Bal.	$6,200

Rent Expense
Adj. Bal.	$3,500

Advertising Expense
Adj. Bal.	$2,000

Step 2: Posting of closing entry in T-accounts

Posting of closing entry is shown as follows: 

Retained Earnings
		$29,600	Adj. Bal.
Clos.	$10,500	$12,800	Clos.
		$31,900	Bal.

Dividends
Adj. Bal.	$10,500	$10,500	Clos.
Bal.	0

Income Summary
Clos.	$11,700	$24,500	Clos.
		$12,800	Bal.
Clos.	$12,800
		0	Bal.

Service Revenue
Clos.	$24,500	$24,500	Adj. Bal.
		0	Bal.

Salaries Expense
Adj. Bal.	$6,200	$6,200	Clos.
Bal.	0

Rent Expense
Adj. Bal.	$3,500	$3,500	Clos.
Bal.	0

Advertising Expense
Adj. Bal.	$2,000	$2,000	Clos.
Bal.	0

Step 3: Calculation of ending balance of Retained Earnings

Ending balance of retained earnings is calculated as follows: 

$$\begin{gathered} \mathbf{EndingBalance}\mathbf{=}\mathbf{BeginningBalance}\mathbf{+}\mathbf{NetIncome}-\mathbf{Dividends} \\ \mathbf{=}\mathbf{\$}\mathbf{29}\mathbf{,}\mathbf{600}+\mathbf{\$}\mathbf{12}\mathbf{,}\mathbf{800}-\mathbf{\$}\mathbf{10}\mathbf{,}\mathbf{500} \\ \mathbf{=}\mathbf{\$}\mathbf{31}\mathbf{,}\mathbf{900} \end{gathered}$$