Question

Financial Statements and Closing Entries

The Gorman Group is a financial planning services firm owned and operated by Nicole Gorman. As of October 31, 2019, the end of the fiscal year, the accountant for The Gorman Group prepared an end-of-period spreadsheet, part of which follows:

The Gorman Group End-of-Period Spreadsheet For the Year Ended October 31, 2019
	Adjusted Trial Balance
Account Title	Dr.	Cr.
Cash	$15,050
Accounts Receivable	32,770
Supplies	5,120
Prepaid Insurance	11,060
Land	116,000
Buildings	419,000
Accumulated Depreciation-Buildings		136,400
Equipment	303,000
Accumulated Depreciation-Equipment		177,700
Accounts Payable		38,760
Salaries Payable		3,840
Unearned Rent		1,740
Nicole Gorman, Capital		497,580
Nicole Gorman, Drawing	29,100
Service Fees		552,700
Rent Revenue		5,840
Salaries Expense	396,240
Depreciation Expense—Equipment	21,500
Rent Expense	18,000
Supplies Expense	12,750
Utilities Expense	11,520
Depreciation Expense—Buildings	7,680
Repairs Expense	6,350
Insurance Expense	3,480
Miscellaneous Expense	5,940
	1,414,560	1,414,560

Required:

1. Prepare an income statement.

Gorman Group Income Statement For the Year Ended October 31, 2019
Revenues:
	$
Total revenues		$
Expenses:
	$
Total expenses
Net income		$

Prepare a statement of owner's equity (no additional investments were made during the year.)

Gorman Group Statement of Owner's Equity For the Year Ended October 31, 2019
		$
	$
		$

Prepare a balance sheet.

Gorman Group Balance Sheet October 31, 2019
Assets				Liabilities
Current assets:				Current liabilities:
		$			$
				Total liabilities		$
Total current assets			$
Property, plant, and equipment:				Owner's Equity
	$
Total property, plant, and building
Total assets			$	Total liabilities and owner's equity		$

2. Journalize the entries that were required to close the accounts at October 31. For a compound transaction, if an amount box does not require an entry, leave it blank.

Date	Account	Debit	Credit
Oct. 31
Oct. 31

3. If the balance of Nicole Gorman, Capital had instead increased $115,000 after the closing entries were posted and the withdrawals remained the same, what would have been the amount of net income or net loss?
$

Answer 1

• All working forms part of the answer
• Income Statement

Income Statement
For the Year Ended October 31, 2019
Revenues:
Service Fees	$    5,52,700.00
Rent Revenue	$        5,840.00
Total revenues		$ 5,58,540.00
Expenses:
Salaries Expense	$    3,96,240.00
Depreciation Expense—Equipment	$       21,500.00
Rent Expense	$       18,000.00
Supplies Expense	$       12,750.00
Utilities Expense	$       11,520.00
Depreciation Expense—Buildings	$        7,680.00
Repairs Expense	$        6,350.00
Insurance Expense	$        3,480.00
Miscellaneous Expense	$        5,940.00
Total expenses		$ 4,83,460.00
Net income		$     75,080.00

• Statement of Owner’s Equity

Gorman Group
Statement of Owner's Equity
For the Year Ended October 31, 2019
Nicole Gorman, Capital		$ 4,97,580.00
Net income	$       75,080.00	$     75,080.00
Total		$ 5,72,660.00
Nicole Gorman, Drawing		$     29,100.00
Ending Balance		$ 5,43,560.00

• Balance Sheet

Balance Sheet
October 31, 2019
Assets				Liabilities
Current assets:				Current liabilities:
Cash		$      15,050.00		Accounts Payable	$     38,760.00
Accounts Receivable		$      32,770.00		Salaries Payable	$       3,840.00
Supplies		$       5,120.00		Unearned Rent	$       1,740.00
Prepaid Insurance		$      11,060.00		Total liabilities		$    44,340.00
Total current assets			$       64,000.00
Property, plant, and equipment:				Owner's Equity
Land		$   1,16,000.00
Buildings	$        4,19,000.00			Beginning Balance	$ 4,97,580.00
Accumulated Depreciation-Buildings	$       (1,36,400.00)	$   2,82,600.00		Add: Net Income	$     75,080.00
Equipment	$        3,03,000.00			Total	$ 5,72,660.00
Accumulated Depreciation-Equipment	$       (1,77,700.00)	$   1,25,300.00		Less: Drawings	$     29,100.00	$ 5,43,560.00
Total property, plant, and building			$    5,23,900.00
Total assets			$    5,87,900.00	Total liabilities and owner's equity		$ 5,87,900.00

• Closing Entries

Date	Account	Debit	Credit
Oct. 31	Service Fees	5,52,700
	Rent Revenue	5,840
	Salaries Expense		396240
	Depreciation Expense—Equipment		21500
	Rent Expense		18000
	Supplies Expense		12750
	Utilities Expense		11520
	Depreciation Expense—Buildings		7680
	Repairs Expense		6350
	Insurance Expense		3480
	Miscellaneous Expense		5940
	Nicole Gorman, Capital		75080
Oct. 31	Nicole Gorman, Capital	29100
	Nicole Gorman, Drawing		29100

• Final Answer

Current Ending Balance	$   5,43,560.00
Add: Increase	115000
Add: Drawings	$       29,100.00
Less: Beginning Balance	$    4,97,580.00
Net Income would have been	$    1,90,080.00