Q23E - Horngren'S Financial And Managerial Accounting

Question

The adjusted trial balance of Quality Office Systems at March 31, 2018, follows:

Requirements

1. Journalize the required closing entries at March 31, 2018. 

2. Set up T-accounts for Income Summary; Retained Earnings; and Dividends. Post the closing entries to the T-accounts, and calculate their ending balances. 

3. How much was Quality Office’s net income or net loss?

Step-by-Step Solution

Answer

The net income of the Quality Office was$83,750.

Step 1: Meaning of Trial Balance

In accounting, trial balance refers to a tabular formatted report that contains the balances of all the ledger accounts of both aspects, i.e., debit and credit. A trial balance facilitates the business entities to draft their annual financial statements.

Step 2: Preparation of closing entries

Date	Accounts and Explanation	Debit ($)	Credit ($)
2018
Mar 31	Sales revenue	235,700
	Income summary		235,700
	(To close the revenue account)
Mar 31	Income summary	151,950
	Cost of goods sold		107,550
	Selling expense		27,400
	Administrative expense		14,200
	Interest expense		2,800
	(To close the expense accounts)
Mar 31	Income summary (235700-151950)	83,750
	Retained earnings		83,750
	(To close the income summary account)
Mar 31	Retained earnings	41,500
	Dividends		41,500
	(To adjust the dividends)

Step 3: Preparation of T-accounts

                                             Income Summary

Date	Particulars	Amount ($)	Date	Particulars	Amount ($)
2018			2018
Mar 31	Expenses	151,950	Mar 31	Sales revenue	235,700
	Retained earnings	83,750	Mar 31	Ending balance	0

                                             Retained Earnings

Date	Particulars	Amount ($)	Date	Particulars	Amount ($)
2018			2018
Mar 31	Dividends	41,500	Mar 31	Opening balance	4,950
			Mar 31	Income summary	83,750
			Mar 31	Ending balance	47,200

                                                       Dividends

Date	Particulars	Amount ($)	Date	Particulars	Amount ($)
2018			2018
Mar 31	Opening balance	41,500	Mar 31	Retained earnings	41,500
Mar 31	Ending balance	0

Step 4: Computation of net income or net loss

$$\begin{gathered} \text{Net Income}=\text{Revenues}-\text{Expenses} \\ =\$235,700-\$151,950 \\ =\$83,750 \end{gathered}$$