Question

After all revenue and expense accounts have been closed at the end of the fiscal year, Income Summary has a debit of $796,400 and a credit of $939,300. At the same date, Retained Earnings has a credit balance of $1,433,000, and Dividends has a balance of $29,000.

Required:

A.	Journalize the entries required to complete the closing of the accounts on December 31. Refer to the Chart of Accounts for exact wording of account titles.
B.	Determine the amount of Retained Earnings at the end of the period.

CHART OF ACCOUNTS

General Ledger

ASSETS 11 Cash 12 Accounts Receivable 13 Prepaid Insurance 14 Supplies 15 Land 16 Building 17 Accumulated Depreciation-Building 18 Equipment 19 Accumulated Depreciation-Equipment LIABILITIES 21 Accounts Payable 22 Salaries and Wages Payable 23 Unearned Rent EQUITY 31 Common Stock 32 Retained Earnings 33 Dividends 34 Income Summary

B. Determine the amount of Retained Earnings at the end of the period.

Answer 1

A.
Journal entry to close income summary account
Date	General Journal	Debit	Credit
31-Dec	Income summary (939,300-796,400)	$142,900
	Retained earnings		$142,900
	(To record close of income summary)
Explanation	Income summary has net credit balance and hence is debited to close the account. Retained earnings balance would increase due to current year net income
Journal entry to close dividend account
Date	General Journal	Debit	Credit
31-Dec	Retained earnings	$29,000
	Dividend		$29,000
	(To record close of dividend account)
Explanation	Retained earnings is debited for decrease in balance as dividend are paid from retained earnings. Dividend is credited for decrease in balance which has debit balance.
B.
Calculation of retained earnings at end of the period
Retained earnings, beginnning balance	$1,433,000
Add: Net income	$142,900
Less: Dividend	$29,000
Retained earnings, ending balance	$1,546,900
Thus, the amount of retained earnings at the end of the period is $1,546,900.