Question

Sheridan Ltd. is a private corporation reporting under ASPE. It has recorded all necessary adjusting entries at its fiscal year end, October 31, 2021. The following information has been taken from the adjusted trial balance:

Accounts payable		$14,400		Interest expense		$4,600
Cash dividends—common		76,000		Notes payable		74,000
Common shares		100,000		Rent expense		30,000
Depreciation expense		35,500		Retained earnings (Nov. 1, 2020)		421,000
Dividends payable		22,000		Salaries expense		191,000
Income tax expense		34,620		Service revenue		441,000
Income tax payable		2,900		Unearned revenue		25,000
Insurance expense		6,800

All accounts have normal balances and total assets equal $732,000. Sheridan has a 20% income tax rate.

Prepare a multiple-step income statement for the year.

SHERIDAN LTD. Income Statement                                                                       Quarter Ended October 31, 2021October 31, 2021Year Ended October 31, 2021
		$
Retained Earnings, November 1Other ExpensesOperating ExpensesCash Dividends—CommonProfit From OperationsProfit / (Loss)InvestmentsProfit Before Income TaxGross ProfitRetained Earnings, October 31:
	$
Profit Before Income TaxProfit / (Loss)Operating ExpensesProfit From OperationsInvestmentsGross ProfitRetained Earnings, November 1Retained Earnings, October 31Other ExpensesCash Dividends—Common
Profit Before Income TaxGross ProfitInvestmentsProfit / (Loss)Other ExpensesProfit From OperationsOperating ExpensesRetained Earnings, November 1Retained Earnings, October 31Cash Dividends—Common
Profit From OperationsOperating ExpensesGross ProfitRetained Earnings, October 31Retained Earnings, November 1Other ExpensesProfit / (Loss)Cash Dividends—CommonInvestmentsProfit Before Income Tax		$

eTextbook and Media

List of Accounts

  

  

Prepare a statement of retained earnings for the year. (List items that increase retained earnings first.)

SHERIDAN LTD. Statement of Retained Earnings                                                                       Quarter Ended October 31, 2021Year Ended October 31, 2021October 31, 2021
Profit From OperationsGross ProfitOperating ExpensesRetained Earnings, October 31Profit Before Income TaxInvestmentsOther ExpensesRetained Earnings, November 1Cash DividendsProfit / (Loss)		$
AddLess:                                                                       Retained Earnings, October 31InvestmentsProfit From OperationsRetained Earnings, November 1Cash Dividends—CommonGross ProfitProfit Before Income TaxProfit / (Loss)Other ExpensesOperating Expenses
AddLess:                                                                       Retained Earnings, October 31Retained Earnings, November 1Cash Dividends—CommonProfit From OperationsOperating ExpensesProfit / (Loss)Gross ProfitProfit Before Income TaxOther ExpensesInvestments
Profit From OperationsProfit / (Loss)Gross ProfitInvestmentsOperating ExpensesRetained Earnings, November 1Cash DividendsRetained Earnings, October 31Other ExpensesProfit Before Income Tax		$

eTextbook and Media

List of Accounts

  

  

Prepare closing entries. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Date	Account Titles and Explanation	Debit	Credit
Oct. 31
	(To close revenue account.)
Oct. 31
	(To close expense accounts.)
Oct. 31
	(To close Income Summary.)
Oct. 31
	(To close dividends.)

eTextbook and Media

List of Accounts

  

  

Post the closing entries to the Income Summary and Retained Earnings accounts. (Post entries in the order of Journal entry presented in the previous part.)

Income Summary
Date	Explanation	Ref.	Debit	Credit	Balance
Oct. 31	Closing entry	J1
Oct. 31	Closing entry	J1
Oct. 31	Closing entry	J1
Retained Earnings
Date	Explanation	Ref.	Debit	Credit	Balance
Oct. 31	Balance	✓
Oct. 31	Closing entry	J1
Oct. 31	Closing entry	J1

Answer 1

Income Statement
Revenue
Service Revenue	$      441,000
Operating Expenses
Depreciation Expense	$         35,500
Insurance Expense	$           6,800
Rent Expense	$         30,000
Salaries Expense	$      191,000
Total Operating Expenses	$      263,300
Profit from Operations	$      177,700
Interest Expense	$           4,600
Profit Before Income Tax	$      173,100
Income Tax Expense	$         34,620
Net Income	$      138,480

Statement of Retained Earnings
Beginning Balance	$      421,000
Add Net Income	$      138,480
	$      559,480
Less
Dividend	$         76,000
Ending Balance	$      483,480

Account Titles	Debit	Credit
Service Revenue	$      441,000
Income Summary		$      441,000
(To close revenue account)
Income Summary	$      302,520
Depreciation Expense		$         35,500
Insurance Expense		$           6,800
Rent Expense		$         30,000
Salaries Expense		$      191,000
Interest Expense		$           4,600
Income Tax Expense		$         34,620
(To close expense accounts)
Income Summary	$      138,480
Retained Earnings		$      138,480
(To close income summary)
Retained Earnings	$         76,000
Dividend		$         76,000
(To close dividends)

	Income Summary
Date	Explanation	Debit	Credit	Balance
Oct-31	Closing Entry		$      441,000	$          441,000
Oct-31	Closing Entry	$      302,520		$          138,480
Oct-31	Closing Entry	$      138,480		$                     -
	Retained Earnings
Date	Explanation	Debit	Credit	Balance
Oct-31	Balance			$          421,000
Oct-31	Closing Entry		$      138,480	$          559,480
Oct-31	Closing Entry	$         76,000		$          483,480