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Q9SE

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Horngren'S Financial And Managerial Accounting
Found in: Page 296

Short Answer

Rocky RV Center’s accounting records include the following accounts at December 31, 2018.

Cost of Goods Sold $ 372,000 Accumulated Depreciation—Building $ 38,000

Accounts Payable 16,000 Cash 47,000

Rent Expense 26,000 Sales Revenue 636,500

Building 113,000 Depreciation Expense—Building 13,000

Common Stock 115,000 Dividends 58,000

Retained Earnings 83,100 Interest Revenue 14,000

Merchandise Inventory 239,600

Notes Receivable 34,000

Requirements

1. Journalize the required closing entries for Rocky.

2. Determine the ending balance in the Retained Earnings account.

Answer

The retained earnings at the end of the year are $379,600.

See the step by step solution

Step by Step Solution

Step 1: Meaning of Retained Earnings

The term retained earnings refers to the amount of profits the business entities retain to meet their future expenses and contingencies. A business retains profit after making the payments of respective taxes, expenses, and dividends.

Step 2: Preparation of closing entries

Date

Accounts and Explanation

Debit ($)

Credit ($)

2018

Dec 31

Sales revenue

636,500

Interest revenue

14,000

Income summary

650,500

(To close the revenue accounts)

Dec 31

Income summary

411,000

Depreciation expense-Building

13,000

Rent expense

26,000

Cost of goods sold

372,000

(To close the expense accounts)

Dec 31

Income summary (636,500-239,500)

239,500

Retained earnings

239,500

(To transfer the income summary balance)

Dec 31

Retained earnings

58,000

Dividends

58,000

(To close the withdrawals)

Step 3: Computation of retained earnings balance

Particulars

Amounts ($)

Opening balance

83,100

Add: Common stock

115,000

Add: Income summary

239,500

Less: Dividends

(58,000)

Closing balance

379,600

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