Worksheet data for Goode Company are presented in E4-2.
Instructions
(a) Journalize the closing entries at April 30.
(b) Post the closing entries to Income Summary and Retained Earnings. Use T accounts.
(c) Prepare a post-closing trial balance at April 30.
Cash 13,752
Accounts Receivable 7,840
Prepaid Rent 2,280
Equipment 23,050
Accumulated Depreciation 4,921
Notes Payable 5,700
Accounts Payable 5,672
Common Stock 25,000
Retained Earnings 5,960
Dividends 3,650
Service Revenue 15,590
Salaries Expense 10,840
Rent Expense 760
Depreciation Expense 671
Interest Expense 57
Interest Payable 57
Totals 62,900 62,900
E4-4
E4-5
The adjustment columns of the worksheet for mears company are shown below:
To answer the questions, we need to understand the concept of closing entries and post-closing trial balance.
Closing Entries:
Closing entries are made at the end of an accounting period to transfer the balances of temporary accounts (revenue, expense, and dividend accounts) to the retained earnings account. The purpose of closing entries is to reset the temporary accounts to zero and prepare them for the next accounting period.
Post-Closing Trial Balance:
A post-closing trial balance is prepared after closing entries are recorded. It includes only permanent (or real) accounts since temporary accounts have already been closed. The purpose of the post-closing trial balance is to ensure that the closing entries have been recorded correctly and that the permanent account balances are accurate.
Now let's answer each part of the question.
(a) Journalize the closing entries at April 30.
To journalize the closing entries, we need to identify the temporary accounts. In this case, the temporary accounts are Service Revenue, Salaries Expense, Rent Expense, Depreciation Expense, and Dividends.
The journal entries for closing these accounts would be as follows:
Service Revenue (Dr) 15,590
Income Summary (Cr) 15,590
Salaries Expense (Dr) 10,840
Rent Expense (Dr) 760
Depreciation Expense (Dr) 671
Income Summary (Cr) 12,271
Income Summary (Dr) 12,271
Retained Earnings (Cr) 12,271
Dividends (Dr) 3,650
Retained Earnings (Cr) 3,650
(b) Post the closing entries to Income Summary and Retained Earnings using T-accounts.
To perform this step, you would need to create T-accounts for Income Summary and Retained Earnings. Then you would post the closing entries from the journal to these T-accounts as follows:
Income Summary:
Debit Credit
Bal. b/d 12,271
Service Revenue 15,590
Salaries Expense 10,840
Rent Expense 760
Depreciation Expense 671
Bal. c/d 12,271
Retained Earnings:
Debit Credit
Bal. b/d 5,960
Income Summary 12,271
Dividends 3,650
Bal. c/d 14,581
(c) Prepare a post-closing trial balance at April 30.
To prepare the post-closing trial balance, we need to list all the permanent (real) accounts and their balances after the closing entries have been posted. The temporary accounts (Service Revenue, Salaries Expense, Rent Expense, Depreciation Expense, and Dividends) should not be included in this trial balance.
The post-closing trial balance would look like this:
Cash 13,752
Accounts Receivable 7,840
Prepaid Rent 2,280
Equipment 23,050
Accumulated Depreciation 4,921
Notes Payable 5,700
Accounts Payable 5,672
Common Stock 25,000
Retained Earnings 14,581
Total 97,796 97,796
This post-closing trial balance ensures that the closing entries have been recorded correctly by verifying that the balances of the permanent accounts are accurate.