Question

Chandler Company is owned by Roscoe Chandler and provides appraisal services to individuals and companies wishing to purchase and sell fine art. Chandler Company began business on January 1, 2018, and is just completing its first year of business. Roscoe asks for your help in completing the accounting cycle for the company by assisting with the closing process.

Before the closing entries are made, you begin with an adjusted trial balance. The closing entries are essentially the link from the adjusted trial balance to the post-closing trial balance.

Chandler Company

ADJUSTED TRIAL BALANCE

December 31, 2018

	ACCOUNT TITLE	DEBIT	CREDIT
1	Cash	67,000.00
2	Accounts Receivable	29,000.00
3	Prepaid Insurance	16,000.00
4	Equipment	60,000.00
5	Accumulated Depreciation-Equipment		40,000.00
6	Accounts Payable		6,000.00
7	Salaries Payable		8,000.00
8	Income Taxes Payable		4,000.00
9	Roscoe Chandler, Capital		13,000.00
10	Roscoe Chandler, Drawing	5,000.00
11	Fees Earned		185,600.00
12	Rent Revenue		92,000.00
13	Interest Revenue		17,200.00
14	Salaries Expense	71,000.00
15	Selling Expense	37,600.00
16	Income Taxes Expense	15,000.00
17	Depreciation Expense-Equipment	47,200.00
18	Insurance Expense	17,000.00
19	Miscellaneous Expense	1,000.00
20	Totals	365,800.00	365,800.00

The Closing Process

The final step of the accounting cycle is the closing process. The main goal of this stage of the cycle is to ensure that the balance of each temporary account is returned to zero and that net income is transferred to the owner's capital account. The first step in successfully undertaking the closing process is to understand the difference between a temporary account and a permanent account. Roscoe has some questions about the process.

Answer the following questions (1) - (3).

1. If a temporary account has an ending balance of $67,000, what is its beginning balance for the following accounting period? If there is no amount or an amount is zero, enter “0”.

2. If a permanent account has an ending balance of $67,000, what is its beginning balance for the following accounting period?

3. Roscoe will be preparing his yearly financial statements after completing Chandler Company’s closing process, and is a somewhat confused about the characteristics of the accounts on his Chart of Accounts. He has started by creating the following chart, and asks for your help in completing it. For each account or type of account listed, choose all descriptions that apply.

	Temporary Account	Permanent Account		Closed to Owner’s Capital Account
				Yes	No
Revenues
Asset accounts
Expenses
Liability accounts
Owner’s drawing account

Roscoe’s Journal

Roscoe has attempted to prepare the closing entries for Chandler Company on this panel. He’s not sure if he’s entered the journal entries correctly, and asks you to review them. You find that one entry is correct, but the other is incorrect.

Determine which entry is incorrect, and journalize both closing entries for Chandler Company as of Dec. 31 on the Journal panel.

PAGE 25

JOURNAL

ACCOUNTING EQUATION

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1		Closing Entries
2	Dec. 31	Roscoe Chandler, Capital		483,600.00				↓
3		Fees Earned			185,600.00			↑
4		Rent Revenue			92,000.00			↑
5		Interest Revenue			17,200.00			↑
6		Salaries Expense			71,000.00			↑
7		Selling Expense			37,600.00			↑
8		Income Taxes Expense			15,000.00			↑
9		Depreciation Expense-Equipment			47,200.00			↑
10		Insurance Expense			17,000.00			↑
11		Miscellaneous Expense			1,000.00			↑
12	31	Roscoe Chandler, Capital		5,000.00				↓
13		Roscoe Chandler, Drawing			5,000.00			↑

Journal

Roscoe has attempted to prepare the closing entries for Chandler Company on the Roscoe’s Journal panel. He’s not sure if he’s entered the journal entries correctly, and asks you to review them. You find that one entry is correct, but the other is incorrect. Refer to the Chart of Accounts for exact wording of account titles.

Determine which entry is incorrect, and journalize both closing entries for Chandler Company as of Dec. 31 in the following journal.

PAGE 25

JOURNAL

ACCOUNTING EQUATION

	DATE	DESCRIPTION	POST. REF.	DEBIT	CREDIT	ASSETS	LIABILITIES	EQUITY
1		Closing Entries
2
3
4
5
6
7
8
9
10
11
12
13

Post-Closing Trial Balance

The post-closing trial balance shows all the permanent accounts with their updated values after the temporary accounts have been reduced to zero balance for the next accounting cycle. Also, the post-closing trial balance is meant to ensure that debits equal credits post-close.

Roscoe is very happy with your work on the closing entries for Chandler Company, and asks if you would prepare a post-closing trial balance for the company.

Chandler Company

POST-CLOSING TRIAL BALANCE

December 31, 2018

	ACCOUNT TITLE	DEBIT	CREDIT
1	Cash
2	Accounts Receivable
3	Prepaid Insurance
4	Equipment
5	Accumulated Depreciation-Equipment
6	Accounts Payable
7	Salaries Payable
8	Income Taxes Payable
9	Roscoe Chandler, Capital
10	Totals

Answer 1

1. If a temporary account has an ending balance of $67,000, what is its beginning balance for the following accounting period?

Answer: $0

2. If a permanent account has an ending balance of $67,000, what is its beginning balance for the following accounting period?

Answer: $67,0000

3.

	Temporary Account	Permanent Account	Closed to Owner’s Capital Account
			Yes	No
Revenues	x		x
Asset accounts		x		x
Expenses	x		x
Liability accounts		x		x
Owner’s drawing account	x		x

Correct Closing Entries:

Date	Account title and explantion	Post.Ref.	Debit	Credit	Assets	Liabilities	Equuity
Dec. 31	Fees Earned		185,600.00				↓
	Rent Revenue		92,000.00				↓
	Interest Revenue		17,200.00				↓
	Salaries Expense			71,000.00			↑
	Selling Expense			37,600.00			↑
	Income Taxes Expense			15,000.00			↑
	Depreciation Expense-Equipment			47,200.00			↑
	Insurance Expense			17,000.00			↑
	Miscellaneous Expense			1,000.00			↑
	Roscoe Chandler, Capital			106,000.00			↑
	[To close revenues and expenses accounts]
Dec. 31	Roscoe Chandler, Capital		5,000.00				↓
	Roscoe Chandler, Drawing			5,000.00			↑
	[To close drawings account]

Post-Closing Trial Balance:

Chandler Company
POST-CLOSING TRIAL BALANCE
December 31,2018
ACCOUNT TITLE	DEBIT	CREDIT
Cash	$67,000
Accounts Receivable	$29,000
Prepaid Insurance	$16,000
Equipment	$60,000
Accumulated Depreciation-Equipment		$40,000
Accounts Payable		$6,000
Salaries Payable		$8,000
Income Taxes Payable		$4,000
Roscoe Chandler, Capital		$114,000
Totals	$172,000	$172,000