How Do I calculate Income Summary and Retained Earnings listed on part 12?? The

Question

How Do I calculate Income Summary and Retained Earnings listed on part 12??

The general ledger of the Karlin Company, a consulting company, at January 1, 2018, contained the following account balances Account Title Cash Accounts receivable Equipment Accumulated depreciation Salaries payable Common stock Retained earnings Total Debits Credits 31,100 14,000 23,000 6,900 8,000 45,000 8, 200 68,100 68,100 The following is a summary of the transactions for the year: a. Sales of services, $118,000, of which $35,400 was on credit. b. Collected on accounts receivable, $24,400 c. Issued shares of common stock in exchange for $12,000 in cash d. Paid salaries, $43,000 (of which $8,000 was for salaries payable) e. Paid miscellaneous expenses, $23,200 f. Purchased equipment for $14,000 in cash g. Paid $2,850 in cash dividends to shareholders 1. Accrued salaries at year-end amounted to $860 2. Depreciation for the year on the equipment is $2,300 Required 2., 5, & 8. Prepare the summary, adjusting and closing entries for each of the transactions listed 3. Post the transactions, adjusting and closing entries into the appropriate t-accounts 4. Prepare an unadjusted trial balance 6. Prepare an adjusted trial balance 7-a. Prepare an income statement for 2018 7-b. Prepare a balance sheet as of December 31, 2018 9. Prepare a post-closing trial balance

Explanation / Answer

Solution:

Balance of income summary transferred to retained earnings will be calculated by subtracting expenses transferred to income summary from revenue transferred to income summary in part 10 and part 11.

Balance of income summary = Service revenue - Expenses

= $118,000 - $61,360 = $56,640

Therefore journal entry in part 12, will be passed for $56,640.

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