Question

The adjusted trial balance of Mountain Advertising Services, at December 31, 2018, follows. This is the first year of operations. (Click the icon to view the adjusted trial balance.) Read the requirements. Review the closing journal entries you prepared above. Cash Accounts Payable Adj. Bal. 14,000 Dec. 31 7,000 Adj. Bal. Bal. 14000 7000 Bal. Service Revenue 71,000 Adj. Bal. Salarles Payable Accounts Receivable Adj. Bal. 3.500 Salarles Expense 18.000 1,100 Adj. Bal. Adj. Bal. Mountain Advertising Services Adjusted Trial Balance December 31, 2018 Balance Account Title Debit Credit Cash $ 14,000 Accounts Receivable 8,500 Office Supplies 1,000 Land 35,000 54,000 Accumulated Depreciation Building $ 28,000 Furniture 12,000 Accumulated Depreciation - Furniture 5,000 Accounts Payable 7,000 Salarles Payable 1,100 Unearned Revenue 3,000 Notes Payable (long-term) 15,000 Common Stock 56,000 Dividends 23,000 Building Office Supplies 1,000 Unearned Revenue 3,000 Adj. Bal. Supplies Expense 1,800 Adj. Bal. Adj. Bal. Land 35,000 Notes Payable 15,000 Adj. Bal. Depreciation ExpenseFurniture Adj. Bal. 3,000 Adj. Bal. Building Common Stock Depreciation Expense-Building Print Done

The adjusted balance​ ("Adj. Bal.") of each account has been entered for you. Post the closing entries to the​ T-accounts and calculate each​ account's post-closing balance. Use Dec. 31 as a posting reference for your closing​ entries, and​ "Bal." references to denote​ post-closing balances. Include a​ post-closing balance for each​ T-account (including those that were not​ closed). For any accounts with a zero balance after​ closing, enter a​ "0" on the normal side of the account. For Income​ Summary, calculate and enter the balance​ ("Bal.") before posting the entry to close out the account. Post the entry to close the Income Summary account on the same line as you entered the balance prior to closing​ (the second​ line) and then show the​ post-closing balance​ ("Bal.") on the last​ (third) line of the account. ​(Abbreviation used: Accum.​ = Accumulated.)

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Answer 1

Closing entries are those entries recorded at the last day of reporting period to close revenue and expense accounts to retained earnings using a temperary account called income summary. When closing entries are recorded for revenues, Income Summary account shall be credited and Revenue accounts shall be debited; Similarly, when closing entries are recorded for expenses, Income Summary account shall be debited and Expense accounts shall be credited. Finally, balance in Income Summary account will represent either Net income or Net loss for the reporting period which shall be closed to Retained Earnings. Therefore, it is clear that dividends account shall be closed to retained earnings whereas other balance sheet related accounts shall not be closed. As a result, ledger accounts of balance sheet items such as assets, liabilities and shareholders' equity only will have ending balance. Balance in both revenue and expense accounts would be zero after recording closing entries. Cash $14,000 $14,000 Adj. Bal. End. Bal. Accounts Payable $7,000 $7,000 Dec. 31 Adj. Bal. End. Bal. Service Revenue $71,000 $71,000 $0 Adj. Bal. End. Bal. Accounts Receivable $8,500 $8,500 Adj. Bal. End. Bal. Salaries Payable $1,100 $1,100 Dec. 31 Adj. Bal. End. Bal. Salaries Expense $18,000 $18,000 $0 Adj. Bal. End. Bal. Office Supplies $1,000 $1,000 Unearned Revenue $3,000 Adj. Bal. $3,000 End. Bal. Supplies Expense $1,600 $1,600 Adj. Bal. End. Bal. Dec. 31 Adj. Bal. End. Bal. $0

Adj. Bal. End. Bal. Land $35,000 $35,000 Notes Payable $15,000 Adj. Bal. $15,000 End. Bal. Depreciation Expense - Furniture Adj. Bal. $3,000 $3,000 Dec. 31 End. Bal. $0 Adj. Bal. End. Bal. Building $54,000 $54,000 Common Stock $56,000 Adj. Bal. $56,000 End. Bal. Depreciation Expense - Building Adj. Bal. $9,000 $9,000 Dec. 31 End. Bal. al. $0 2 Accum. Deppreciation-Building $28,000 Adj. Bal. $28,000 End. Bal. Dec. 31 Retained Earnings $23,000 $0 Adj. Bal. $32,400 Dec. 31 $9,400 End. Bal. Adj. Bal. End. Bal. Bal. Dec. 31 Advertising Expense $7,000 $7,000 $0 Summary: Furniture $12,000 $12,000 Dividends $23,000 $23,000 Dec. 31 Adj. Bal. End. Bal. Adj. Bal. End. Bal. $0 Accum. Deppreciation-Furniture $5,000 Adj. Bal. $5,000 End. Bal. Dec. 31 Dec. 31 Income Summary $38,600 $71,000 Dec. 31 $32,400 End. Bal. Salaries Expense $18,000 Supplies Expense $1,600 Depreciation Expense - Furniture $3,000 Depreciation Expense - Building $9,000 Advertising Expense $7,000 Total debits to Income Summary $38,600 Service Revenue $71,000 Net income trasferred to Ret. Earn. $32,400 ($71000 - $38600) $0