Question

The accounts in the Adjusted Trial Balance (after any adjusting entries) at the end of the accounting period for Lord Fairfax Entertainment Co. are listed BELOW in alphabetical order. All accounts have normal balances.

Accounts Payable	$1,000
Accounts Receivable	5,000
Capital Stock/Retained Earnings	10,000
Cash	7,500
Dividends paid	2,500
Fees Earned	5,000
Supplies (asset)	400
Supplies Expense	600
Wages Expense	1,000
Wages Payable	1,000

Based on the ABOVE information and YOUR calculations, recommend preparing the four POST CLOSING journal entries using the account titles/descriptions: Fees Earned, Income Summary, Capital Stock, Dividends, Supply Expense, and Wage Expense. Remember, you will not be using some of the account balances at the top as they are permanent account and are not closed out.

Complete below only the third step to close out the Income Summary Account.

Q: Apr 30 Third step to close our the Income Summary Account is:

a. Debit income summary $2,500; Credit Capital Stock/Retained Earnings $2,500

b. Debit Income Summary $3,400, Credit Capital Stock /Retained Earnings $3,400

c. Debit Capital Stock/Retained Earnings $3,400; Credit Income Summary $3,400

d. Debit Capital Stock/ Retained Earnings $10,000; Credit Income Summary $10,000

Answer 1

• All working forms part of the answer
• Requirement 1: Four closing Journal entries will be:

Accounts title	Debit	Credit
Fees Earned	$                    5,000.00
Income Summary		$                   5,000.00
(1st step: revenue accounts closed)
Income Summary	$                    1,600.00
Supplies expense		$                       600.00
Wages Expenses		$                   1,000.00
(2nd step: expense accounts closed)
Income Summary	$                    3,400.00
Capital Stock/Retained Earnings [5000 - 1600]		$                   3,400.00
(3rd step: Income summary balance closed)
Capital Stock/Retained earnings	$                    2,500.00
Dividends (paid)		$                   2,500.00
(4th step: Dividend account closed)

• Based on above 3^rd journal entry, the correct answer is Option ‘B’ : Debit Income Summary $3,400, Credit Capital Stock /Retained Earnings $3,400