Question

Rae Services, Inc. provides healthcare diagnostics for patients with autoimmune diseases. At the end of their first year of operations, Rae Services account balances are shown in the adjusted trial balance shown below:

Rae Services, Inc. Adjusted Trial Balance December 31, 2012
Cash	176,000
Accounts receivable	139,000
Supplies	4,500
Prepaid insurance	2,600
Equipment	88,700
Accumulated depreciation--Equipment		3,400
Accounts payable		67,500
Common stock		250,000
Retained earnings		125,000
Dividends	65,000
Service revenue		214,507
Advertising expense	2,500
Depreciation expense--Equipment	3,400
Insurance expense	1,000
Rent expense	9,900
Salaries expense	163,000
Supplies expense	1,425
Utilities expense	3,382
	660,407	660,407

a) Prepare closing entries.

Date	Description	Debit	Credit

b) Prepare a post-closing Trial Balance

Rae Services, Inc. Post-closing Trial Balance December 31, 2012
Accounts	Debits	Credits
Total

c) Prepare an Income Statement

Rae Services, Inc. Income Statement December 31, 2012
Assets:Current Assets:Expenses:Liabilities:Property, Plant, & Equipment:Stockholder's Equity:
Net IncomeTotal AssetsTotal Current AssetsTotal ExpensesTotal LiabilitiesTotal Liabilities & Stockholder's EquityTotal Property, Plant, & EquipmentTotal Stockholder's Equity
Net IncomeTotal AssetsTotal Current AssetsTotal ExpensesTotal LiabilitiesTotal Liabilities & Stockholder's EquityTotal Property, Plant, & EquipmentTotal Stockholder's Equity

d) Prepare a Balance Sheet

Rae Services, Inc. Balance Sheet December 31, 2012
Assets:Current Assets:Expenses:Liabilities:Property, Plant, & Equipment:Stockholder's Equity:
Assets:Current Assets:Expenses:Liabilities:Property, Plant, & Equipment:Stockholder's Equity:
Net IncomeTotal AssetsTotal Current AssetsTotal ExpensesTotal LiabilitiesTotal Liabilities & Stockholder's EquityTotal Property, Plant, & EquipmentTotal Stockholder's Equity
Assets:Current Assets:Expenses:Liabilities:Property, Plant, & Equipment:Stockholder's Equity:
Net IncomeTotal AssetsTotal Current AssetsTotal ExpensesTotal LiabilitiesTotal Liabilities & Stockholder's EquityTotal Property, Plant, & EquipmentTotal Stockholder's Equity
Net IncomeTotal AssetsTotal Current AssetsTotal ExpensesTotal LiabilitiesTotal Liabilities & Stockholder's EquityTotal Property, Plant, & EquipmentTotal Stockholder's Equity
Assets:Current Assets:Expenses:Liabilities:Property, Plant, & Equipment:Stockholder's Equity:
Assets:Current Assets:Expenses:Liabilities:Property, Plant, & Equipment:Stockholder's Equity:
Net IncomeTotal AssetsTotal Current AssetsTotal ExpensesTotal LiabilitiesTotal Liabilities & Stockholder's EquityTotal Property, Plant, & EquipmentTotal Stockholder's Equity
Net IncomeTotal AssetsTotal Current AssetsTotal ExpensesTotal LiabilitiesTotal Liabilities & Stockholder's EquityTotal Property, Plant, & EquipmentTotal Stockholder's Equity

e) Prepare a Statement of Retained Earnings

Rae Services, Inc. Statement of Retained Earnings December 31, 2012
Add: DividendsAdd: Net IncomeLess: DividendsLess: Net IncomeRetained Earnings, beginning balanceRetained earnings, ending balance
Add: DividendsAdd: Net IncomeLess: DividendsLess: Net IncomeRetained Earnings, beginning balanceRetained earnings, ending balance
Add: DividendsAdd: Net IncomeLess: DividendsLess: Net IncomeRetained Earnings, beginning balanceRetained earnings, ending balance
Add: DividendsAdd: Net IncomeLess: DividendsLess: Net IncomeRetained Earnings, beginning balanceRetained earnings, ending balance

Answer 1

Answer a.
Journal Entry
Date	Particulars	Dr. Amt.	Cr. Amt.
31-Dec-12	Service Revenue	214,507.00
	Income Summary		214,507.00
	(To record the closing entry for service revenue)
31-Dec-12	Income Summary	184,607.00
	Advertising Expense		2,500.00
	Depreciation Expense - Equipment		3,400.00
	Insurance Expense		1,000.00
	Rent Expense		9,900.00
	Salaries Expense		163,000.00
	Supplies Expense		1,425.00
	Utilities Expense		3,382.00
	(To record the closing entry for expenses)
31-Dec-12	Income Summary	29,900.00
	Retained Earnings		29,900.00
	(To record the net income earned)
31-Dec-12	Retained Earnings	65,000.00
	Dividends		65,000.00
	(To record the closing entry for dividends)

Answer b.
Rae Services Inc.
Post Closing Trial Balance
Dec 31, 2012
Particulars	Dr. Amt.	Cr. Amt.
Cash	176,000.00
Accounts Receivable	139,000.00
Supplies	4,500.00
Prepaid Insurance	2,600.00
Equipment	88,700.00
Accumulated Depreciation - Equip		3,400.00
Accounts Payable		67,500.00
Common Stock		250,000.00
Retained Earnings		89,900.00
Total	410,800.00	410,800.00
Answer c.
Rae Services Inc.
Income Statement
Dec 31, 2012
Revenues
Service Revenue		214,507.00
Expenses
Advertising Expense	2,500.00
Depreciation Expense - Equipment	3,400.00
Insurance Expense	1,000.00
Rent Expense	9,900.00
Salaries Expense	163,000.00
Supplies Expense	1,425.00
Utilities Expense	3,382.00	184,607.00
Net Income		29,900.00
Answer d.
Rae Services Inc.
Balance Sheet
Dec 31, 2012
Assets
Current Assets
Cash	176000
Accounts Receivable	139000
Supplies	4500
Prepaid Insurance	2600	322,100.00
Property, Plant & Equipment
Equipment	88700
Accumulated Depreciation - Equip	(3,400.00)	85,300.00
Total Assets		407,400.00
Liabilities & Stockholders' Equity
Liabilities
Current Liabilities
Accounts Payable		67500
Long Term Liabilities		-
Total Liabilities		67,500.00
Stockholders' Equiy
Common Stock	250,000.00
Retained Earnings	89,900.00
Total Stockholders' Equiy		339,900.00
Total Liabilities & Stockholders' Equiy		407,400.00
Answer e.
Rae Services Inc.
Statement of Retained Earnings
Dec 31, 2012
Beginning Balance Jan 1, 2012		125,000.00
Net Income		29,900.00
Sub-total		154,900.00
Dividends		(65,000.00)
Ending Balance, Dec 31, 2012		89,900.00