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

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:

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.

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

Explanation / Answer

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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

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