Question

Presented below is income statement information of the Schefter Corporation for the year ended December 31, 2018. Sales revenue $ 512,000 Salaries expense 82,800 Interest revenue 6,800 Advertising expense 11,500 Gain on sale of investments 9,200 Cost of goods sold 281,600 Insurance expense 14,300 Interest expense 3,900 Income tax expense 41,000 Depreciation expense 24,000 Required: Prepare the necessary closing entries at December 31, 2018

Answer 1

• All working forms part of the answer
• Working: Draft Income Statement for closing entries

	Amount	Balance
Sales revenue	$             5,12,000.00	Credit
Cost of Goods Sold	$             2,81,600.00	Debit
Gross Profits	$             2,30,400.00
Operating Expenses:
Salaries expense	$                 82,800.00	Debit
Advertisement expenses	$                 11,500.00	Debit
Insurance Expenses	$                 14,300.00	Debit
Depreciation expense	$                 24,000.00	Debit
Operating Income	$                 97,800.00
Other revenues & expenses:
Interest reveue	$                   6,800.00	Credit
Gain on Sale of Investments	$                   9,200.00	Credit
interest expense	$                 (3,900.00)	Debit
Net Income before taxes	$             1,09,900.00
Income Tax expense	$                 41,000.00	Debit
Net Income	$                 68,900.00

• For Closing Journal Entries:

Accounts with Credit Balances (usually revenue accounts) are closed by Debiting them (and crediting Income Summary a/c)
Accounts with Debit Balances (usually expense accounts) are closed by Crediting them (and debiting Income Summary a/c)

• Closing Entries based on above working and data are provided below:

Date	General Journal	Debit	Credit
31-Dec-18	Sales revenue	$               5,12,000.00
	Interest reveue	$                     6,800.00
	Gain on Sale of Investments	$                     9,200.00
	Income Summary		$                   5,28,000.00
	(revenue accounts with credit balanaces closed)
31-Dec-18	Income Summary	$               4,59,100.00
	Cost of Goods Sold		$                   2,81,600.00
	Salaries expense		$                      82,800.00
	Advertisement expenses		$                      11,500.00
	Insurance Expenses		$                      14,300.00
	Depreciation expense		$                      24,000.00
	interest expense		$                         3,900.00
	Income Tax expense		$                      41,000.00
	(expenses accounts with debit balances closed)
31-Dec-18	Income Summary [528000 - 459100]	$                  68,900.00
	Retained earnings		$                      68,900.00
	(Income Summary Closed)