Question

Gerdes Psychological Services, Inc., closes its temporary accounts once each year on December 31. The company recently issued the following income statement as part of its annual report:

GERDES PSYCHOLOGICAL SERVICES, INC.
Income Statement
For the year ended December 31, current year

Revenue:
Counseling revenue $ 320,000
Expenses:
Advertising expense $ 2,000
Salaries expense 94,000
Office supplies
expense 2,600
Utilities expense 1,000
Malpractice insurance
expense 7,000
Office rent expense 29,000
Continuing education
expense 2,200
Depreciation expense:
fixtures 3,500
Miscellaneous
expense 7,000
Income taxes expense 33,000 181,300
Net income $ 138,700

The firm's statement of retained earnings indicates that a $7,000 cash dividend was declared and paid during the current year.

a. Prepare the necessary closing entries on December 31, current year.

b. If the firm's Retained earnings account had a $91,000 balance on January 1, current year, at what amount should Retained earnings be reported in the firm's balance sheet dated December 31, current year

Answer 1

A)

Dr Counseling revenue 320,000

Cr Income summary 320,000

Dr income summary 181,300

Dr Advertising expenses 2,000

Dr Salaries expense 94,000

Dr Office supplies expense 2,600

Dr Utilities expense 1,000

Dr Malpractice insurance expense 7,000

Dr Office rent expense 29,000

Dr Continuing education expense 2,200

Dr Depreciation expense 3,500

Dr Miscellaneous expenses 7,000

Dr Income tax expense 33,000

Dr Income summary 138,700

Cr Retained earnings 138,700

Dr Retained earnings 7,000

Cr Dividends 7,000

B) Retained earning's beginning balance - dividends + summary statement = $91,000 - $7,000 + $138,700 = $222,700