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, 2018, 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, 2018
	Adjusted Trial Balance
Account Title	Dr.	Cr.
Cash	$11,000
Accounts Receivable	28,150
Supplies	6,350
Prepaid Insurance	9,500
Land	75,000
Buildings	250,000
Accumulated Depreciation-Buildings		117,200
Equipment	240,000
Accumulated Depreciation-Equipment		151,700
Accounts Payable		33,300
Salaries Payable		3,300
Unearned Rent		1,500
Common Stock		25,000
Retained Earnings		195,000
Dividends	20,000
Service Fees		468,000
Rent Revenue		5,000
Salaries Expense	291,000
Depreciation Expense-Equipment	17,500
Rent Expense	15,500
Supplies Expense	9,000
Utilities Expense	8,500
Depreciation Expense-Buildings	6,600
Repairs Expense	3,450
Insurance Expense	3,000
Miscellaneous Expense	5,450
	1,000,000	1,000,000

Required:

1. Prepare an income statement.

The Gorman Group Income Statement For the Year Ended October 31, 2018
Revenues:
Total revenues
Expenses:
Total expenses		$
		$

Prepare a retained earnings statement.

The Gorman Group Retained Earnings Statement For the Year Ended October 31, 2018
		$

Prepare a balance sheet.

The Gorman Group Balance Sheet October 31, 2018
Assets				Liabilities
Current assets:				Current liabilities:
				Total liabilities
Total current assets
Property, plant, and equipment:				Stockholders' Equity
Total property, plant, and equipment				Total stockholders' equity
Total assets				Total liabilities and stockholders' 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 Close revenues
Oct. 31 Close expenses
Oct. 31 Close income/loss
Oct. 31 Close dividends

3. If the balance of Retained Earnings had instead increased $115,000 after the closing entries were posted, and the dividends remained the same, what would have been the amount of net income or net loss? Enter all amounts as positive numbers.
$  

Answer 1

Income Statement:
revenues:
Service fees			468000
Rent revenue			5000
Total revenue				473000
Expenses:
Salaries expense			291000
Depreciation			17500
Rent expense			15500
Supplies			9000
Utilities expense			8500
Depreciation-Building			6600
Repairs expenses			3450
Insurance expenses			3000
Misc. expenses			5450
Total expenses				360000
Net income				113000
Statement of Retained earnings:
Beginning balance of RE				195000
Add: Net income for the year				113000
				308000
Less: Dividend				20000
Ending balance of RE				288000
Balance Sheet:
Assets					Liabilities:
Current assets:					Current Liabilities:
Cash			11000		Accounts payable			33300
Accounts receivable			28150		Salaries payable			3300
Supplies			6350		Unearned rent			1500
Prepaid insurance			9500		Total Liabilities				38100
Total current assets:				55000
Property Plant and Equipment:					Stockholder's equity:
Land			75000		Common Stock			25000
Building		250000			Retained earnings			288000
Less: Accumulated dep		117200	132800		Total Stockholder's equity				313000
Equipment		240000
Less: Accumulated dep		151700	88300
Total Property, Plant and equipment				296100
Total Assets				351100	Total Liabilities and Stockholder's equity				351100
Closing entries:
Accounts title and explanations				Debit $	Credit $
Service fees Ddr.				468000
Rent revenue Dr.				5000
Income Summary					473000
Income Summary Dr.				360000
Salaries expense					291000
Depreciation-Equipment					17500
Rent expense					15500
Supplies expenses					9000
Utilities expenses					8500
Depreciation-Building					6600
Repairs expenses					3450
Insurance expenses					3000
Misc expenses					5450
Income Summary Dr.				113000
Retained earnings					113000
Retained earnings Dr.				20000
Dividend account					20000
Increase in Retained earnings balance				115000
Add: Dividend paid				20000
Net income earned during the year				135000