Q22E - Horngren'S Financial And Managerial Accounting

Question

Selected accounts for Kebby Photography at December 31, 2018, follow: Salaries Expense 31,800 1,400 2,700 Supplies Expense 7,000 1,500 Depreciation Expense—Building Depreciation Expense—Furniture Dividends 14,000 Service Revenue 33,000 4,500 Retained Earnings 49,000 Requirements 1. Journalize Kebby Photography’s closing entries at December 31, 2018. 2. Determine Kebby Photography’s ending Retained Earnings balance at December 31, 2018.

Step-by-Step Solution

Answer

(1) Closing entries are as follows:

Date	Accounts and Explanation	Debit	Credit
Dec. 31	Service Revenue	$37,500
	Income Summary		$37,500
	To close revenue.
Dec. 31	Income Summary	$44,400
	Salaries Expense		$33,200
	Supplies Expense		$2,700
	Depreciation Expense—Building		$7,000
	Depreciation Expense—Furniture		$1,500
	To close expenses.
Dec. 31	Retained Earnings	$6,900
	Income Summary		$6,900
	To close Income Summary
Dec. 31	Retained Earnings	$14,000
	Dividends		$14,000
	To close Dividends

(2) Ending balance of retained earnings equals to $28,100.

Step 1: Calculation of net loss

Net loss is calculated as follows: 

$\begin{array}{rcl}\mathbf{NetLoss}& \mathbf{=}& \mathbf{TotalRevenues}-\mathbf{TotalExpenses}\\ & \mathbf{=}& \mathbf{\$}\mathbf{37}\mathbf{,}\mathbf{500}-\mathbf{\$}\mathbf{44}\mathbf{,}\mathbf{400}\\ & \mathbf{=}& \mathbf{\$}\left(\mathbf{6}\mathbf{,}\mathbf{900}\right)\end{array}$

Step 2: Calculation of ending balance of retained earnings

Ending balance of retained earnings  is calculated as follows: 

$\begin{array}{rcl}\mathbf{EndingBalance}& \mathbf{=}& \mathbf{BeginningBalance}-\mathbf{NetLoss}-\mathbf{Dividends}\\ & \mathbf{=}& \mathbf{\$}\mathbf{49}\mathbf{,}\mathbf{000}-\mathbf{\$}\mathbf{6}\mathbf{,}\mathbf{900}-\mathbf{\$}\mathbf{14}\mathbf{,}\mathbf{000}\\ & \mathbf{=}& \mathbf{\$}\mathbf{28}\mathbf{,}\mathbf{100}\end{array}$