Question

Badger, Inc. has the following account balances related to its 2016 operations:

Repair Revenues
$840,000
Prepaid Expenses
$85,000
Wages and Salaries
240,000
Dividends
1,500
Depreciation Expense
13,000
Unearned Revenue
120,000
Interest Revenue
6,000
Accum. Depreciation
25,000
Which of these accounts would be credited in the closing entries?

Answer 1

In closing entries for Badger, Inc., both Repair Revenues and Interest Revenue would be credited to zero out their balances. Unearned Revenue, Prepaid Expenses, and Accumulated Depreciation are not closed as they are not temporary accounts. Dividends would be debited, reducing the equity in the Retained Earnings account.

Step-by-step explanation:

The question requires an understanding of the closing entries in accounting. At the end of an accounting period, companies make closing entries to transfer the balances of temporary accounts to a permanent equity account, often the Retained Earnings account, to prepare the accounts for the next accounting period. In this scenario, the accounts that would typically be credited are revenue accounts, which include Repair Revenues and Interest Revenue, and gain accounts. Expense accounts, dividend accounts, and the withdrawal accounts of sole proprietorships and partnerships are debited to zero out their balances, and the credit side of these entries goes to Income Summary or directly to Retained Earnings if using a simplified approach.

The Unearned Revenue is not closed because it is a liability account representing revenue that has been collected but not yet earned. Similarly, Prepaid Expenses and Accumulated Depreciation are not closed as they are asset accounts. Dividends would be debited in the closing entries because they represent a distribution of earnings to shareholders and are subtracted from equity.