Question

The Gorman Group is a financial planning services firm owned and operated by Nicole Gorman. As of October 31, 2019, the end of the fiscal year, the accountant for The Gorman Group prepared an end-of-period spreadsheet, part of which follows:

The Gorman Group
End-of-Period Spreadsheet
For the Year Ended October 31, 2019
Adjusted Trial Balance
Account Title Dr. Cr.
Cash 13,880
Accounts Receivable 30,210
Supplies 4,720
Prepaid Insurance 10,200
Land 89,000
Buildings 319,000
Accumulated Depreciation-Buildings 103,900
Equipment 230,000
Accumulated Depreciation-Equipment 135,300
Accounts Payable 29,520
Salaries Payable 2,930
Unearned Rent 1,330
Nicole Gorman, Capital 378,780
Nicole Gorman, Drawing 22,200
Service Fees 421,010
Rent Revenue 4,450
Salaries Expense 301,820
Depreciation Expense—Equipment 16,400
Rent Expense 13,700
Supplies Expense 9,710
Utilities Expense 8,780
Depreciation Expense—Buildings 5,850
Repairs Expense 4,840
Insurance Expense 2,650
Miscellaneous Expense 4,520
1,077,220 1,077,220
Required:
1. Prepare an income statement.
Prepare a statement of owner's equity (no additional investments were made during the year).
Prepare a balance sheet.
2. Journalize the entries that were required to close the accounts at October 31.
3. If the balance of Nicole Gorman, Capital had instead increased $115,000 after the closing entries were posted and the withdrawals remained the same, what would have been the amount of net income or net loss?

Answer 1

The Gorman Group

1. The Gorman Group

Income Statement

For the Year Ended October 31, 2019

Service Fees $421,010

Rent Revenue 4,450

Total Revenue $425,460

Salaries Expense $301,820

Depreciation Expense—Equipment 16,400

Rent Expense 13,700

Supplies Expense 9,710

Utilities Expense 8,780

Depreciation Expense—Buildings 5,850

Repairs Expense 4,840

Insurance Expense 2,650

Miscellaneous Expense 4,520 $368,270

Net Income $57,190

The Gorman Group

Statement of Owner's Equity

For the Year Ended October 31, 2019

Nicole Gorman, Capital $378,780

Net Income 57,190

Nicole Gorman, Drawing (22,200)

Owner's Equity, October 31, 2019 $413,770

2. Closing Journal Entries at October 31, 2019:

Debit Income Summary $368,270

Credit:

Salaries Expense $301,820

Depreciation Expense—Equipment 16,400

Rent Expense 13,700

Supplies Expense 9,710

Utilities Expense 8,780

Depreciation Expense—Buildings 5,850

Repairs Expense 4,840

Insurance Expense 2,650

Miscellaneous Expense 4,520

To close the expenses accounts to the income summary.

Debit:

Service Fees $421,010

Rent Revenue 4,450

Credit Income Summary $425,460

To close the revenue accounts to the income summary.

3. The amount of net income would have been $137,200.

Step-by-step explanation:

a) Data and Calculations:

The Gorman Group

End-of-Period Spreadsheet

For the Year Ended October 31, 2019

Adjusted Trial Balance

Account Title Dr. Cr.

Cash $13,880

Accounts Receivable 30,210

Supplies 4,720

Prepaid Insurance 10,200

Land 89,000

Buildings 319,000

Accumulated Depreciation-Buildings $103,900

Equipment 230,000

Accumulated Depreciation-Equipment 135,300

Accounts Payable 29,520

Salaries Payable 2,930

Unearned Rent 1,330

Nicole Gorman, Capital 378,780

Nicole Gorman, Drawing 22,200

Service Fees 421,010

Rent Revenue 4,450

Salaries Expense 301,820

Depreciation Expense—Equipment 16,400

Rent Expense 13,700

Supplies Expense 9,710

Utilities Expense 8,780

Depreciation Expense—Buildings 5,850

Repairs Expense 4,840

Insurance Expense 2,650

Miscellaneous Expense 4,520

Totals 1,077,220 1,077,220

Amount of Nicole Gorman's Capital increased by $115,000:

Net income would have been $137,200 instead of $57,190.

Closing Nicole Gorman, Capital = $515,980

Less Drawings 22,200

Beginning capital 378,780 400,980

Increase in capital = $115,000