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
To answer this question, we need to understand the concept of closing entries, posting to specific accounts, and preparing a post-closing trial balance.
(a) Journalizing the closing entries at April 30:
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 and prepare the accounts for the next accounting period. In this case, we need to close the revenue, expense, and dividends accounts.
The closing entries would be as follows:
1. Debit the revenue account (Service Revenue) for its current balance ($15,590).
2. Credit the expense accounts (Salaries Expense, Rent Expense, Depreciation Expense, and Interest Expense) for their current balances ($10,840 + $760 + $671 + $57).
3. Credit the dividends account for its current balance ($3,650).
4. Credit the income summary account for the total of the revenue and expense accounts' balances. The net income (or loss) is transferred to this account.
The journal entries should look like this:
Service Revenue $15,590
Income Summary $15,590
Salaries Expense $10,840
Rent Expense $760
Depreciation Expense $671
Interest Expense $57
Income Summary $12,328
Dividends $3,650
Income Summary $3,650
(b) Posting the closing entries to Income Summary and Retained Earnings:
Next, we need to post the closing entries to the Income Summary and Retained Earnings accounts. Let's assume that the Retained Earnings account already has a beginning balance of $5,960.
Posting the closing entries would be as follows:
1. Debit the Income Summary account for the total revenue and expense closing balances ($15,590 - $12,328).
2. Credit the Retained Earnings account for the amount debited to the Income Summary account (net income or net loss).
The postings should look like this:
Income Summary $3,262
Retained Earnings $3,262
(c) Preparing a post-closing trial balance at April 30:
A post-closing trial balance is prepared to ensure that the books are in balance after closing the temporary accounts and transferring their balances to Retained Earnings.
The post-closing trial balance should include only the permanent accounts (assets, liabilities, and equity accounts). The balances of the closing entries should not appear in the trial balance.
The post-closing trial balance for Goode Company at April 30 should include the following accounts and their balances:
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 $8,222 (calculated as the beginning balance of $5,960 + net income of $3,262)
Interest Payable $57
These are the steps to answer the questions based on the provided worksheet data. Remember to check for accuracy and consider any additional information that may affect the answers.