Q9SE - Horngren'S Financial And Managerial Accounting

Question

Rocky RV Center’s accounting records include the following accounts at December 31, 2018.

Cost of Goods Sold \( 372,000       Accumulated Depreciation—Building \) 38,000 

Accounts Payable 16,000                Cash 47,000

Rent Expense 26,000                        Sales Revenue 636,500

Building 113,000                     Depreciation Expense—Building 13,000

Common Stock 115,000                  Dividends 58,000

Retained Earnings 83,100               Interest Revenue 14,000

Merchandise Inventory 239,600 

Notes Receivable 34,000

Requirements

1. Journalize the required closing entries for Rocky. 

2. Determine the ending balance in the Retained Earnings account.

Step-by-Step Solution

Answer

Answer

The retained earnings at the end of the year are $379,600.

Step 1: Meaning of Retained Earnings

The term retained earnings refers to the amount of profits the business entities retain to meet their future expenses and contingencies. A business retains profit after making the payments of respective taxes, expenses, and dividends.  

Step 2: Preparation of closing entries

Date	Accounts and Explanation	Debit ($)	Credit ($)
2018
Dec 31	Sales revenue	636,500
	Interest revenue	14,000
	Income summary		650,500
	(To close the revenue accounts)
Dec 31	Income summary	411,000
	Depreciation expense-Building		13,000
	Rent expense		26,000
	Cost of goods sold		372,000
	(To close the expense accounts)
Dec 31	Income summary (636,500-239,500)	239,500
	Retained earnings		239,500
	(To transfer the income summary balance)
Dec 31	Retained earnings	58,000
	Dividends		58,000
	(To close the withdrawals)

Step 3: Computation of retained earnings balance

Particulars	Amounts ($)
Opening balance	83,100
Add: Common stock	115,000
Add: Income summary	239,500
Less: Dividends	(58,000)
Closing balance	379,600