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
1. Journalize the required closing entries for Rocky.
2. Determine the ending balance in the Retained Earnings account.
The retained earnings at the end of the year are $379,600.
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.
Accounts and Explanation
(To close the revenue accounts)
Cost of goods sold
(To close the expense accounts)
Income summary (636,500-239,500)
(To transfer the income summary balance)
(To close the withdrawals)
Add: Common stock
Add: Income summary
Dobbs Wholesale Antiques makes all sales under terms of FOB shipping point. The company usually ships inventory to customers approximately one week after receiving the order. For orders received late in December, Kathy Dobbs, the owner, decides when to ship the goods. If profits are already at an acceptable level, Dobbs delays shipment until January. If profits for the current year are lagging behind expectations, Dobbs ships the goods during December.
1. Under Dobbs’s FOB policy, when should the company record a sale?
2. Do you approve or disapprove of Dobbs’s manner of deciding when to ship goods to customers and record the sales revenue? If you approve, give your reason. If you disapprove, identify a better way to decide when to ship goods. (There is no accounting rule against Dobbs’s practice.)
The adjusted trial balance of Rockin Robbin Dance Company at April 30, 2018, follows:
ROCKIN ROBBIN DANCE COMPANY
Adjusted Trial Balance
April 30, 2018
Account Title Debit Credit
Accounts Receivable 38,000
Merchandise Inventory 17,800
Office Supplies 850
Accumulated Depreciation-Furniture $8,300
Accounts Payable 14,100
Salaries Payable 1,000
Unearned Revenue 6,500
Notes Payable, long-term 12,000
Common Stock 5,000
Retained Earnings 36,150
Sales Revenue 178,500
Cost of Goods Sold 83,700
Selling Expense 19,000
Administrative Expense 16,000
Interest Expense 1,900
Total $261,550 $261,550
1. Prepare Rockin Robbin’s multi-step income statement for the year ended April 30, 2018.
2. Journalize Rockin Robbin’s closing entries.
3. Prepare a post-closing trial balance as of April 30, 2018.
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