Question

The following is the income statement for the period ending December 31, Year 1, for Manatee Construction Company:

Manatee Construction Company Income Statement

Sales $8,000,000
Cost of goods sold (6,500,000)
Gross profit 1,500,000
Salaries expense (300,000)
Other administrative expenses (100,000)
Interest expense (900,000)
Advertising expense (450,000)
Total expenses (1,750,000)
Operating loss (250,000)
Gain from the sale of investments 100,000
Total net loss $(150,000)

Based on this information, perform the adjusting journal entry to close Manatee’s books at the end of Year 1. To prepare each required journal entry: Enter the corresponding debit or credit amount in the associated column. Round all amounts to the nearest whole number.

Account Name Debit Credit

1. Sales
2. Cost of goods sold
3. Salaries expense
4. Other administrative expenses
5. Interest expense
6. Advertising expense
7. Gain from the sale of investments
8. Retained earnings

Answer 1

Sales 8,000,000 DEBIT

Gain from the sale of investments 100,000 DEBIT

Income Summary 8,100,000 CREDIT

--to close revenues and earnings account

Income Summary 8,250,000 DEBIT

Cost of goods sold 6,500,000 CREDIT

Salaries expense 300,000 CREDIT

Other administrative expenses 100,000 CREDIT

Interest expense 900,000 CREDIT

Advertising expense 450,000 CREDIT

--to close expenses account

Retained Earnings 150,000 DEBIT

Income Summary 150,000 CREDIT

Step-by-step explanation:

To close the accounts we use the income summary account as an auxiliar tool

The revenues and gains have a normla balance of credit thus, we debit to close them

The expenses are normal balance debit so we credit them against income summary.

Last we transfer the Income Summary account into retained earnings.