EYK
13-3
Corporate Supplement:
Closing Entries Detailed
The closing process for a corporation is the same as described for a sole proprietorship. The difference is into which accounts the income summary and cash dividends
are closed. Exhibit CS13.1 summarizes the closing process for a corporation.
Four-Step Closing Process
Close revenue
accounts to Income
Summary account.
2 Close expense
accounts to Income
Summary account.
3 Close Income
Summary account
to Retained
Earnings account.
4 Close Cash
Dividends account
to Retained
Earnings account.
1
Expense
Accounts
2
Income
Summary
1
Revenue
Accounts
EXHIBIT CS13.1
Closing Process for a Corporation
3
Retained
Earnings
4
Cash
Dividends
Two differences can be identified in the closing process of a corporation versus a
proprietorship when comparing Exhibit CS13.1 above with Exhibit 4.5. First, Step 3
shows the Income Summary being closed to the Retained Earnings account above.
For a sole proprietorship, the Income Summary is closed to the owner’s capital account. The second difference is in Step 4: Cash Dividends is closed to Retained Earnings for a corporate entity but withdrawals, the equivalent of dividends, is closed to
the owner’s capital account in a proprietorship. Regardless of the differences, notice
that for both the result is the same: all temporary (or nominal) accounts are closed
to equity at the end of the accounting period.
1
2
Extend Your Knowledge 13-3 Corporate Supplement: Closing Entries
EXER C I SE S
CHECK FIGURE:
3. Retained earnings,
April 30, 2014
⫽ $21,000
Exercise CS13-1
Preparing a work sheet
The alphabetized adjusted trial balance for Maritime Touring Corporation after its second year of operations follows:
Maritime Touring Corporation
Work Sheet
For Year Ended April 30, 2014
Adjusted
Trial Balance
Account
Accounts payable .......................................................................
Accounts receivable ...................................................................
Accumulated depreciation, tour boats ........................................
Cash ..........................................................................................
Cash dividends ...........................................................................
Common shares .........................................................................
Gas and oil expense ...................................................................
Income tax expense ...................................................................
Office supplies............................................................................
Retained earnings.......................................................................
Salaries expense .........................................................................
Tour boats ..................................................................................
Tour revenue ..............................................................................
Unearned tour revenue ..............................................................
Totals .........................................................................................
Debit
Credit
$ 3,350
$ 26,000
16,200
14,000
52,000
200,000
32,000
10,000
950
75,000
76,000
212,000
$422,950
116,000
12,400
$422,950
Required
1.
Enter the adjusted trial balance onto a work sheet.
2.
Complete the work sheet.
3.
Calculate the balance in the retained earnings account as it would appear on the April 30, 2014,
balance sheet.
Extend Your Knowledge 13-3 Corporate Supplement: Closing Entries
CHECK FIGURE:
Net income ⫽ $25,900
Exercise CS13-2
3
Extending accounts in the work sheet
The alphabetized adjusted trial balance columns from a 10-column work sheet for Peach
Corporation follow.
Peach Corporation
Work Sheet
For Year Ended May 30, 2014
Adjusted
Trial Balance
Account
Accounts payable .......................................................................
Accounts receivable ...................................................................
Accumulated depreciation, trucks ..............................................
Cash ..........................................................................................
Cash dividends ...........................................................................
Common shares .........................................................................
Depreciation expense, trucks......................................................
Fees earned ................................................................................
Franchise....................................................................................
Income tax expense ...................................................................
Income tax payable ....................................................................
Rent expense .............................................................................
Retained earnings.......................................................................
Salaries expense .........................................................................
Salaries payable ..........................................................................
Trucks ........................................................................................
Unearned fees ............................................................................
Utilities expense .........................................................................
Totals .........................................................................................
Debit
Credit
$ 14,000
$ 26,200
33,000
6,000
10,000
70,000
11,000
98,000
30,000
4,400
1,800
12,000
5,500
37,000
3,200
82,000
800
7,700
$226,300
$226,300
Required Complete a work sheet by extending the adjusted account balances into the appropriate
financial statement columns and by entering the amount of net income or loss for the reporting
period.
4
Extend Your Knowledge 13-3 Corporate Supplement: Closing Entries
Exercise CS13-3
Following is the adjusted trial balance, with accounts in alphabetical order, for eSOFT:
eSoft Corporation
Adjusted Trial Balance
September 30, 2014
Debit
Accounts payable ...........................................................................
Accumulated depreciation, office equipment .................................
Cash ..............................................................................................
Cash dividends ...............................................................................
Common shares .............................................................................
Consulting fees earned ...................................................................
Depreciation expense, office equipment ........................................
Office equipment ...........................................................................
Prepaid rent ...................................................................................
Rent expense .................................................................................
Retained earnings...........................................................................
Unearned consulting fees ...............................................................
Wages expense ..............................................................................
Totals .............................................................................................
Credit
$ 9,000
21,000
49,000
38,000
40,000
136,000
$
7,000
63,000
28,000
3,500
27,000
$215,500
6,000
3,500
—
$215,500
Required Prepare the closing entries.
Exercise CS13-4
KRG Corporation
Adjusted Trial Balance
January 31, 2014
Accounts receivable .......................................................................
Accumulated depreciation, equipment ...........................................
Cash ..............................................................................................
Cash dividends ...............................................................................
Common shares .............................................................................
Depreciation expense, equipment ..................................................
Equipment .....................................................................................
Interest revenue .............................................................................
Rent expense .................................................................................
Retained earnings...........................................................................
Salaries expense .............................................................................
Subscription revenues ....................................................................
Unearned subscription revenue ......................................................
Totals .............................................................................................
Required Prepare the closing entries.
Debit
$ 13,000
Credit
$ 12,000
9,000
4,000
15,000
2,000
22,000
450
7,400
4,950
56,000
—
$113,400
62,000
19,000
$113,400
Extend Your Knowledge 13-3 Corporate Supplement: Closing Entries
CHECK FIGURE:
Total equity ⫽ $38,140
5
Exercise CS13-5
The adjusted trial balance for Alpine Climbing Corporation has been alphabetized as follows:
Alpine Climbing Corporation
Adjusted Trial Balance
March 31, 2014
Debit
Accounts payable ...........................................................................
Accounts receivable .......................................................................
Accumulated depreciation, equipment ...........................................
Cash ..............................................................................................
Cash dividends ...............................................................................
Common shares .............................................................................
Depreciation expense, equipment ..................................................
Equipment .....................................................................................
Income tax expense .......................................................................
Insurance expense..........................................................................
Interest expense .............................................................................
Long-term notes payable ...............................................................
Rent expense .................................................................................
Retained earnings...........................................................................
Revenues........................................................................................
Supplies .........................................................................................
Supplies expense............................................................................
Telephone expense ........................................................................
Unearned revenues ........................................................................
Utilities expense .............................................................................
Wages expense ..............................................................................
Totals .............................................................................................
Credit
$ 2,400
$ 16,000
14,000
10,000
17,000
30,000
1,400
61,000
5,000
3,900
660
11,000
15,000
6,700
122,000
540
3,600
4,200
22,000
1,800
68,000
$208,100
—
$208,100
Required Prepare an income statement for the year ended March 31, 2014, and a classified balance
sheet at March 31, 2014. A $6,000 payment on the long-term notes payable will be made during the
year ended March 31, 2015.
6
CHECK FIGURE:
Retained earnings,
December 31, 2014 ⫽
$20,850
Extend Your Knowledge 13-3 Corporate Supplement: Closing Entries
Exercise CS13-6
The adjusted trial balance for Wellness Consulting Corporation has been alphabetized as follows:
Wellness Consulting Services Corporation
Adjusted Trial Balance
December 31, 2014
Debit
Accounts payable ...........................................................................
Accumulated depreciation, equipment ...........................................
Accumulated depreciation, office furniture .....................................
Depreciation expense, equipment ..................................................
Depreciation expense, office furniture ............................................
Cash ..............................................................................................
Cash dividends ...............................................................................
Common shares .............................................................................
Consulting fees earned ...................................................................
Dividends earned ...........................................................................
Equipment .....................................................................................
Income tax expense .......................................................................
Insurance expense..........................................................................
Interest expense .............................................................................
Long-term notes payable ...............................................................
Office furniture...............................................................................
Retained earnings...........................................................................
Supplies .........................................................................................
Supplies expense............................................................................
Telephone expense ........................................................................
Temporary investments ..................................................................
Unearned professional fees .............................................................
Utilities expense .............................................................................
Wages expense ..............................................................................
Totals .............................................................................................
$
Credit
$ 1,200
17,000
6,900
2,000
900
4,000
38,000
10,000
127,000
2,300
35,000
14,000
1,200
720
8,000
10,200
1,360
1,500
4,300
940
14,000
750
1,750
46,000
$174,510
—
$174,510
Required Prepare an income statement for the year ended December 31, 2014, and a classified balance
sheet at December 31, 2014. A $5,000 payment on the long-term notes payable will be made during the
year ended December 31, 2015.