Q3TI-2 - Horngren'S Financial And Managerial Accounting

Question

Benson Auto Repair had the following account balances after adjustments. Assume all accounts had normal balances.

Cash \( 4,000 Common Stock \) 20,000

Accounts Receivable 3,200 Retained Earnings, January 1 15,700

Prepaid Rent 1,900 Dividends 2,100

Office Supplies 3,000 Service Revenue 1,600

Equipment 34,800 Depreciation Expense—Equipment 300

Accumulated Depreciation—Equipment 1,600 Salaries Expense 800

Accounts Payable 5,400 Rent Expense 500

Notes Payable (long-term) 7,000 Utilities Expense 600

Supplies Expense 100

14. Prepare the closing entries for Benson at December 31.

15. What is the balance of Retained Earnings after closing entries have been recorded? (Use a T-account to determine the balance.)

Step-by-Step Solution

Answer

The balance of retained earnings equals $12,900. 

Step 1: Explanation on Retained Earnings

Ending balance of retained earnings is calculated by adding net income or subtracting net loss, and subtracting dividends from beginning balance of retained earnings.  

Step 2: Retained Earnings Account

Retained earnings account is shown as follows:

Retained Earnings
Close 4.	$2,100	$15,700	Adj. Bal,
Close 3.	$700
		$12,900	Bal.