E4 - 08: Okabe Company ended its fi scal year on July 31, 2017.

The company’s Solution: Mohammad Sarwar Rekabder (MRE)

adjusted trial balance as of the end of its fiscal year is shown below:
(a) General Journal
OKABE COMPANY J15
Adjusted Trial Balance Date Account Titles Ref. Debit Credit
July 31, 2017 31-Jul Service Revenue 400 64,000
No. Account Titles Debit Credit Rent Revenue 429 6,500
101 Cash 9840 Income Summary 350 70,500
112 Accounts Receivable 8780
157 Equipment 15900 31 Income Summary 350 78,600
158 Accumulated Depreciation—Equip. 7400 Salaries and Wages Expense 726 55,700
201 Accounts Payable 4220 Utilities Expense 732 14,900
208 Unearned Rent Revenue 1800 Depreciation Expense 711 8,000
301 Owner’s Capital 45200
306 Owner’s Drawings 16000 31 Owner’s Capital 301 8,100
400 Service Revenue 64000 Income Summary 350 8,100
429 Rent Revenue 6500
711 Depreciation Expense 8000 31 Owner’s Capital 301 16,000
726 Salaries and Wages Expense 55700 Owner’s Drawings 306 16,000
732 Utilities Expense 14900
129120 129120
Instructions: (b)
(a) Prepare the closing entries using page J15. Owner’s Capital No. 301
(b) Post to Owner’s Capital and No. 350 Income Summary accounts. (Use the Date Explanation Ref. Debit Credit Balance
three-column form.) 31-Jul Balance ✓ 45,200
(c) Prepare a post-closing trial balance at July 31. 31 Close net loss J15 8,100 37,100
31 Close drawing J15 16,000 21,100
Preparing a Post-Closing Trial Balance
The post-closing trial balance lists permanent accounts and their balances after Income Summary No. 350
the journalizing and posting of closing entries. The purpose of the post-closing Date Explanation Ref. Debit Credit Balance
trial balance is to prove the equality of the permanent account balances carried 31-Jul Close revenue J15 70,500 70,500
forward into the next accounting period. Since all temporary accounts 31 Close expenses J15 78,600 -8,100
will have zero balances, the post-closing trial balance will contain only 31 Close net loss J15 8,100 0
permanent—balance sheet—accounts.
(c)
Preparing Closing Entries
At the end of the accounting period, the company transfers temporary account OKABE COMPANY
balances to the permanent owner’s equity account, Owner’s Capital, by means of Post-Closing Trial Balance
closing entries. July 31, 2017
Account Titles Debit Credit
Closing entries formally recognize in the ledger the transfer of net income Cash 9840
(or net loss) and owner’s drawings to owner’s capital. The owner’s equity statement Accounts Receivable 8780
shows the results of these entries. Closing entries also produce a zero Equipment 15900
balance in each temporary account. The temporary accounts are then ready to Accumulated Depreciation—Equipment 7400
accumulate data in the next accounting period separate from the data of prior Accounts Payable 4220
periods. Permanent accounts are not closed. Unearned Rent Revenue 1800
Owner’s Capital 21100
34520 34520

Assignment:
Victoria Lee Company had the following adjusted trial balance.
VICTORIA LEE COMPANY
Adjusted Trial Balance
For the Month Ended June 30, 2017
No. Account Titles Debit Credit
101 Cash 3712
112 Accounts Receivable 3904
157 Supplies 480
201 Accounts Payable 1382
208 Unearned Rent Revenue 160
301 Owner’s Capital 5760
306 Owner’s Drawings 550
400 Service Revenue 4300
711 Miscellaneous Expense 1260
726 Salaries and Wages Expense 256
728 Supplies Expense 1900
12062 11602
Instructions
(a) Prepare the closing entries using page J14.
(b) Post to Owner’s Capital and No. 350 Income Summary accounts. (Use the
three-column form.)
(c) Prepare a post-closing trial balance at July 31.

……………………………………………………………………………………………………..

The adjusted trial balance columns of the worksheet for Thao Company, owned by THAO COMPANY THAO COMPANY
D. Thao, are as follows. Income Statement Balance Sheet
THAO COMPANY For the Year Ended December 31, 2017 December 31, 2017
Worksheet
For the Year Ended December 31, 2017 Revenues Assets
No. Account Titles Debit Credit Service revenue $61,000 Current Assets
101 Cash 5300 Cash 5300
112 Accounts Receivable 10800 Expenses Accounts receivable 10,800
126 Supplies 1500 Salaries and wages expense 28,000 Supplies 1500
130 Prepaid Insurance 2000 Advertising Expense 8400 Prepaid Insurance 2000
157 Equipment 27000 Depreciation expense 5600 Total Current Assets 19600
158 Accumulated Depreciation -Equipment 5600 Supplies expense 4000
200 Notes Payable 15000 Insurance Expense 3500 Property Plant and Equipment
201 Accounts Payable 6100 Interest expense 600 Equipment $27,000
212 Salaries and Wages Payable 2400 Total expenses 50,100 Less: Accum. depreciation—equipment 5600 21,400
230 Interest Payable 600
301 Owner’s Capital 13000 Net income $10,900 Total assets $41,000
306 Owner’s Drawings 7000
400 Service Revenue 61000 Steps in the accounting cycle: Liabilities and Owner’s Equity
610 Advertising Expense 8400
631 Supplies Expense 4000 (1) analyze business transactions, (2) journalize the transactions,(3) post Current Liabilities
711 Depreciation Expense 5600 to ledger accounts, (4) prepare a trial balance, (5) journalize and post Notes payable $5,000
722 Insurance Expense 3500 adjusting entries, (6) prepare an adjusted trial balance, (7) prepare Accounts payable 6100
726 Salaries and Wages Expense 28000 financial statements, (8) journalize and post closing entries, and (9) prep Salaries and wages payable 2400
905 Interest Expense 600 are a post-closing trial balance. Interest payable 600
103700 103700 Total Current Liabilities $14,100
Instructions
(a) Prepare an income statement, owner’s equity statement, and a classifi ed balance sheet. Owner’s Equity Statement Long-term Liabilities
(Note: $5,000 of the notes payable become due in 2018.) D. Thao did not make any For the Year Ended December 31, 2017 Notes Payable 10000
additional investments in the business during the year.
(b) Prepare the closing entries. Use J14 for the journal page. Owner’s capital, January 1, 2017 $13,000 Total liabilities 24,100
(c) Post the closing entries. Use the three-column form of account. Income Summary is Add: Net income 10,900
No. 350. $23,900 Owner’s equity
(d) Prepare a post-closing trial balance. Less: Drawings 7,000 Owner’s capital 16,900

Owner’s capital, December 31, 2017 $16,900 Total liabilities and Owner’s equity $41,000
Mohammad Sarwar Rekabder (MRE)

(C ) General Journal
J14
Date Account Titles Ref. Debit Credit
31-Dec Service Revenue 400 61,000
Income Summary 350 61,000

31 Income Summary 350 50,100

Salaries and wages expense 726 28,000
Advertising Expense 610 8400
Depreciation expense 711 5600
Supplies expense 631 4000
Insurance Expense 722 3500
Interest expense 905 600

31 Income Summary 350 10,900

Owners Capital 301 10,900

31 Owner’s Capital 301 7,000

Owner’s Drawings 306 7,000

Owner’s Capital No. 301

Date Explanation Ref. Debit Credit Balance
31-Dec Balance ✓ 13000 13,000
31 Close net lncome J14 10900 23,900
31 Close drawing J14 7,000 16,900

Income Summary No. 350

Date Explanation Ref. Debit Credit Balance
31-Dec Close revenue J14 61,000 61,000
31 Close expenses J14 50,100 10,900
31 Close net Income J14 10900 0

(d)

THAO COMPANY
Post-Closing Trial Balance
Dec 31, 2017
Account Titles Debit Credit
Cash 5300
Accounts Receivable 10800
Supplies 1500
Prepaid Insurance 2000
Equipment 27000
Accumulated Depreciation—Equipment 5600
Notes Payable 15000
Accounts Payable 6100
Salaries and Wages Payable 2400
Interest Payable 600
Owner’s Capital 16900
46600 46600