Question

How do you do the closing entries for the following company's books?

Comprehensive Problem

Patricia Allison began an engineering consulting business on January 1, 2011, organized as a corporation (PA Engineering, Inc.) under the laws of Delaware. The annual reporting period ends December 31, 2011. The trial balance on January 1, 2012, is provided in the following table:

PA Engineering Trial Balance, January 1, 2012

Account Titles	Debit	Credit
Cash	$10,000
Accounts Receivable
Office Supplies	$20,000
Land
Computers	$80,000
Accumulated Depreciation (on computers)
Miscellaneous Other Assets	$5,000
Accounts Payable
Salaries and Wages Payable
Interest Payable
Income Taxes Payable
Long-Term Notes Payable
Contributed Capital (100,000 shares)		$115,000
Retained Earnings
Service Revenue
Depreciation Expense
Supplies Expense
Wages Expense
Interest Expense
Income Tax Expense
Remaining Expenses (not detailed to simplify)
Totals	$115,000	$115,000

Transactions during 2012 are as follows:

a. Borrowed $20,000 cash on a five-year, 10 percent note payable, dated July 1, 2012.

b. Purchased land for a future building site; paid cash, $10,000.

c. Earned $200,000 in revenues for 2012, including $60,000 on credit and the rest in cash.

d. Sold 4,000 additional shares of capital stock for cash at $1.15 market value per share on January 3, 2012.

e. Incurred $120,000 in remaining expenses for 2012, including $20,000 on credit and the rest paid in cash.

f. Collected accounts receivable, $40,000.

g. Purchased other assets for $8,000 cash.

h. Paid accounts payable, $18,000.

i. Purchased office supplies on account for future use, $25,000.

j. Signed a three-year, $33,000 service contract to start February 1, 2013.

k. Declared and paid cash dividends, $10,000.

Data for adjusting entries:

l. Supplies counted on December 31, 2012, $18,000.

m. Depreciation for the year on the equipment, $21,000.

n. Interest accrued on notes payable (to be computed).

o. Wages earned by employees since the December 24 payroll but not yet paid, $15,000.

p. Income tax expense, $10,000, payable in 2013.

Answer 1

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S No	Date	Account	Debit	Credit
1	Jun 1	Cash	20000
1	Jun 1	Note Payable		20000
2	Jun 1	Land	10000
2	Jun 1	Cash		10000
3	Jun 1	Cash	140000
3		Accounts Receivable	60000
3	Jun 1	Revenue		200000
4	Jun 2	Cash	4600
4	Jun 2	Contributed Capital		4600
5	Jun 4	Remaining Expense	120000
5		Cash		100000
5	Jun 4	Accounts Payable		20000
6	Jun 8	Cash	40000
6	Jun 8	Accounts Receivable		40000
7	Jun 10	Other Assets	8000
7	Jun 10	Cash		8000
8	Jun 14	Accounts Payable	18000
8	Jun 14	Cash		18000
9	Jun 16	Office Supplies	25000
9	Jun 16	Accounts Payable		25000
10	Jun 16	No Entry
10	Jun 16
11	Jun 17	Dividend Declared	10000
11	Jun 17	Cash		10000
		Adjusting Entries
1	Jun 30	Office Supply Expense 20000+25000-18000	27000
1	Jun 30	Office Supplies		27000
2	Jun 30	Depreciation	21000
2	Jun 30	Accumulated Depreciation		21000
3	Jun 30	Interest Expense (20000*10%*half month)	1000
3	Jun 30	Interest Payable		1000
4	Jun 30	Wage Expense	15000
4	Jun 30	Salaries and wages payable		15000
5	Jun 30	Income Tax	10000
5	Jun 30	Income Tax Payable		10000