Question

16) An adjusted trial balance for a sole proprietorship is given below. There were no new capital contributions during the year. Debit Credit Cash $14,000 Accounts Receivable 5000 Prepaid Rent 800 Merchandise Inventory 26,000 Accounts Payable $4200 Salaries Payable 1500 Notes Payable 600 Lorenzo, Capital 8000 Lorenzo, Withdrawals 1000 Sales Revenue 98,500 Cost of Goods Sold 23,000 Salaries Expense 19,000 Rent Expense 15,000 Selling Expense 8400 Supplies Expense 600 Total $112,800 $112,800 What will be the final balance in the company's Lorenzo, Capital account after recording the closing entries?

A) $40,500 B) $7000 C) $31,000 D) $39,500

Answer 1

Answer is D

Working:

Lorenzo, capital balance after recording closing entries
(8,000 + 32,500 - 1,000)		39500

Closing Entries
1. Entry to close revenue accounts
Account Title	Debit	credit
Sales Revenue	98500
Income Summary		98500
2. Entry to close expense accounts
Account Title	Debit	credit
Income Summary	66000
Cost of goods sold		23000
Salaries Expense		19000
Rent Expense		15000
Selling Expense		8400
Supplies Expense		600
3. Entry to close income summary account to capital account
Account Title	Debit	credit
Income Summary	32500
Lorenzo, Capital account		32500
4. Entry to close the withdrawals account to capital account
Account Title	Debit	credit
Lorenzo, Capital account	1000
Lorenzo, withdrawals		1000