Question

Xmet Inc. showed the following alphabetized list of adjusted account balances at December 31, 2014:

  

Accounts Payable	26,160
Accounts Receivable	39,600
Accumulated depreciation, Equipment	10,840
Accumulated depreciation, Warehouse	21,680
Cash	8,800
Cash Dividends	20,000
Common Shares	116,000
Equipment	78,800
Income Tax Expense	41,000
Land	121,600
Notes Payable, due in 2017	34,000
Operating Expenses	109,600
Preferred Shares	39,600
Retained Earnings	28,120
Revenue	275,800
Warehouse	132,800

  

Required:

1.	Assuming normal balances, prepare the closing entries at December 31, 2014, the company’s year end. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Journal entry worksheet

1. Record the closing of the revenue account to the income summary.

2. Record the closing of the expenses accounts to the income summary

3. Record the closing of the income summar to retained earnings.

4. Close the cash dividends account assuming Retained Earnings was not debited directly when dividends were declared.

	Date General Journal Debit Credit December 31, 2014

  

2.	Calculate the post-closing balance in Retained Earnings at December 31, 2014. (Amounts to be deducted should be indicated by a minus sign.)

  

	Post-Closing Balance in Retained Earnings: Retained Earnings, December 31, 2013 Retained Earnings, December 31, 2014

Answer 1

1. Entry for transferring Revenue account to Income summary -

Revenue account have a credit balance as per the basic rule ( Revenue accout is credited and expense account is debited). we are transferring the revenue account to income summary which means that we are closing the revenue account from the ledger. Therefore, to close, Revenue account needs to be debited and income summary will be credited.

2. Transferring expenses account to income summary -

Expense account has negative balance thus to close expense account will get credited and income summary will be debited. In income summary, revenuw will be shown in credit side and expenses will be shown in debit side.

3. Closing the Income summary to Retained earnings. - Income summary is the income statement for the year whereas retained earnings are earnings till date. A company need to transfer the net profit or loss of the income summary to retained earnings account every year. If there is profit the Retained earnings will be credited and vice versa.

Revenue           =      275,800

Expenses        =       150,600

Profit =                   125,200

4. Cash dividend - The dividend is paid out of the earnings. In the given case, when the divided were paid the retained earnings were not debited and simply cash dividend account were debited and Cash account were credited. Hence the cash dividend accounts still stands opened in the books as shown. Now we need to charge the Cash dividend to the retained earnings. This will reduce the earnings hence Retained earnings will be debited and cash dividend which is an expense will get debited so that the account is closed. THe enty would be -

2. Post closure balance in Retained earnings. -

Thanks

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