Q29PSA - Horngren'S Financial And Managerial Accounting

Question

The adjusted trial balance of Erickson Real Estate Appraisal at June 30, 2018, follows: 

 Requirements 

1. Prepare the company’s income statement for the year ended June 30, 2018. 

2. Prepare the company’s statement of retained earnings for the year ended June 30, 2018. 

3. Prepare the company’s classified balance sheet in report form at June 30, 2018. 

4. Journalize the closing entries.

5. Open the T-accounts using the balances from the adjusted trial balance, and post the closing entries to the T-accounts. 

6. Prepare the company’s post-closing trial balance at June 30, 2018.

Step-by-Step Solution

Answer

(1) In income statement, net loss is $9,500. 

(2) In statement of retained earnings, ending balance is $2,700.

(3) In balance sheet, total assets and total liabilities & stockholders’ equity equals $82,900.

(4) Closing entries are mentioned in Step 4. 

(5) T accounts are mentioned in Step 5. 

(6) In post-closing trial balance, total debits and credits equals $108,100.

Step 1: Income Statement

(1) Income statement is shown as follows: 

ERICKSON REAL ESTATE APPRAISAL
Income Statement
Year Ended  June 30, 2018
Revenues
Service Revenue		$48,100
Expenses
Insurance Expense	$4,400
Salaries Expense	33,500
Supplies Expense	300
Interest Expense	8,500
Utilities Expense	2,700
Depreciation Expense—Building	8,200
Total Expenses		57,600
Net Loss		$(9,500)

Step 2: Statement of Retained Earnings

(2) Statement of retained earnings is shown as follows: 

ERICKSON REAL ESTATE APPRAISAL
Statement of Retained Earnings
Year Ended  June 30, 2018
Retained Earnings, Beginning Balance	$39,500
Net loss for the year	(9,500)
	30,000
Dividends	(27,300)
Retained Earnings,  November 30, 2018	$2,700

Step 3: Classified Balance Sheet

(3) Balance Sheet is shown as follows:

ERICKSON REAL ESTATE APPRAISAL
Balance Sheet
June 30, 2018
Assets
Current Assets:
Cash		$4,600
Accounts Receivable		5,300
Office Supplies		1,500
Prepaid Insurance		1,700
Total Current Assets			$13,100
Property, Plant, and Equipment:
Land		13,000
Building	$82,000
Less: Accumulated Depreciation- Building	(25,200)	56,800
Total Property, Plant, and Equipment:			69,800
Total Assets			$82,900

Liabilities
Current Liabilities:
Accounts Payable		18,700
Interest Payable		8,500
Salaries Payable		2,400
Unearned revenue		7,600
Total Current Liabilities:			$37,200
Long-term Liabilities
Notes Payable			40,000
Total Liabilities			77,200

Stockholders’ Equity
Common Stock			3,000
Retained Earnings			2,700
Total Stockholders’ Equity			5,700
Total Liabilities and Stockholders’ Equity			$82,900

Step 4: Closing entries for the period

(4) Closing entries are as follows:

Date	Accounts and Explanation	Debit	Credit
Dec. 31	Service Revenue	$48,100
	Income Summary		$85,000
	To close revenue.
Dec. 31	Income Summary	$57,600
	Insurance Expense		$4,400
	Salaries Expense		$33,500
	Supplies Expense		$300
	Interest Expense		$8,500
	Utilities Expense		$2,700
	Depreciation Expense—Building		$8,200
	To close expenses.
Dec. 31	Retained Earnings	$9,500
	Income Summary		$9,500
	To close Income Summary
Dec. 31	Retained Earnings	$27,300
	Dividends		$27,300
	To close Dividends

Step 5: T Accounts

(5) T accounts are shown as follows: 

Posting of closing entry is shown as follows: 

Retained Earnings
Clos.	$9,500	$39,500	Adj. Bal.
Clos.	$27,300
		$2,700	Bal.

Dividends
Adj. Bal.	$27,300	$27,300	Clos.
Bal.	0

Income Summary
Clos.	$57,600	$48,100	Clos.
Bal.	$9,500
		$9,500	Clos.
Bal.	0

Service Revenue
Clos.	$48,100	$48,100	Adj. Bal.
		0	Bal.

Insurance Expense
Adj. Bal.	$4,400	$4,400	Clos.
Bal.	0

Salaries Expense
Adj. Bal.	$33,500	$33,500	Clos.
Bal.	0

Supplies Expense
Adj. Bal.	$300	$300	Clos.
Bal.	0

Interest Expense
Adj. Bal.	$8,500	$8,500	Clos.
Bal.	0

Utilities Expense
Adj. Bal.	$2,700	$2,700	Clos.
Bal.	0

Depreciation Expense—Building
Adj. Bal.	$8,200	$8,200	Clos.
Bal.	0

Step 6: Post-Closing trial balance

(6) Post-closing trial balance is shown as follows: 

ERICKSON REAL ESTATE APPRAISAL
Post-Closing Trial Balance
June 30, 2018
	Balance
Account Title	Debit	Credit
Cash	$4,600
Accounts Receivable	5,300
Office Supplies	1,500
Prepaid Insurance	1,700
Land	13,000
Building	82,000
Accumulated Depreciation—Building		$25,200
Accounts Payable		18,700
Interest Payable		8,500
Salaries Payable		2,400
Unearned Revenue		7,600
Notes Payable (long-term)		40,000
Common Stock		3,000
Retained Earnings		2,700
Total	$108,100	$108,100