Chapter 3, Problem 70BPSB

Problem 3-70B Comprehensive Problem: Reviewing the Accounting Cycle

Wilburton Riding Stables provides stables, care for animals, and grounds for riding and showing horses. The account balances at the beginning of 2019 were:

During 2019, the following transactions occurred:

1. Wilburton provided animal care services, all on credit, for $210,300. Wilburton rented stables to customers for $20,500 cash. Wilburton rented its grounds to individual riders, groups, and show organizations for $41,800 cash.
2. There remains $15,600 of accounts receivable to be collected at December 31, 2019.
3. Feed in the amount of $62,900 was purchased on credit and debited to the supplies
4. Straw was purchased for $7,400 cash and debited to the supplies account.
5. Wages payable at the beginning of 2019 were paid early in 2019. Wages were earned and paid during 2019 in the amount of $12,000.
6. The income taxes payable at the beginning of 2019 were paid early in 2019.
7. Payments of $73,000 were made to creditors for supplies previously purchased on credit.
8. One year’s interest at 9% was paid on the note payable on July 1, 2019.
9. During 2019, Jon Wilburton, a principal stockholder, purchased a horse for his Wife, Jennifer, to ride. The horse cost $7,000, and Wilburton used his personal credit to purchase it. The horse is stabled at the Wilburton home rather than at the riding stables.
10. Property taxes were paid on the land and buildings in the amount of S17,000.
11. Dividends were declared and paid in the amount Of

The following data are available for adjusting entries:

• Supplies (feed and straw) in the amount of $30,400 remained at year end.

• Annual depreciation on the buildings is $6,000.

• Annual depreciation on the equipment is

• Wages of $4,000 were unrecorded and unpaid at year end.

• Interest for 6 months at 9% per year on the note is unpaid and unrecorded at year end.

• Income taxes of $16,500 were unpaid and unrecorded at year end.

Required:

1. Post the 2019 beginning balances to T-accounts. Prepare journal entries for Transactions a through k and post the journal entries to T-accounts, adding any new T-accounts you need.
2. Prepare the adjustments and post the adjustments to the T-accounts, adding any new T-accounts you need.
3. Prepare an income statement.
4. Prepare a retained earnings statement.
5. Prepare a classified balance sheet.
6. Prepare closing entries.
7. CONCEPTUAL CONNECTION Did you include Transaction i among Wilburton’s 2019 journal entries? Why or why not?

To determine

To record: Journal entries and prepare T accounts to post those entries.

Introduction: Journal entries provide a record of the financial activities undertaken within an organization. Journal entries helps in preparation of financial statements of a company.

Explanation of Solution

Journalizing:

Journalizing is the process of recording the transactions of an organization in a chronological order. Based on these journal entries recorded, the accounts are posted to the relevant ledger accounts.

Accounting rules for journal entries:

• To increase balance of the account: Debit assets, expenses, losses and credit all liabilities, capital, revenue and gains.
• To decrease balance of the account: Credit assets, expenses, losses and debit all liabilities, capital, revenue and gains.

Recording service revenue:

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
	Accounts receivables		210,300
	Care service			210,300
	(to record service revenue)

Table (1)

• Since accounts receivables is an asset and asset is increased. Hence, accounts receivablesaccount is debited.
• Since care service is an income and income is increased. Hence, care service account is credited.

Recording service revenue:

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
	Cash		62,300
	Stable rent service			20,500
	Ground rent service			41,800
	(to record service revenue)

Table (2)

• Since cash is an asset and asset is increased. Hence, cash account is debited.
• Since stable rent service is an income and income is increased. Hence, stable rent service account is credited.
• Since ground rent service is an income and income is increased. Hence, ground rent service account is credited.

Recording receipt from accounts receivables:

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
	Cash		199,100
	Accounts receivable			199,100
	(to record receipt of accounts receivables)

Table (3)

• Since cash is an asset and asset is increased. Hence, cash account is debited.
• Since accounts receivables is an asset and asset is decreased. Hence, accounts receivables is credited.

Recording purchase of supplies:

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
	Supplies		62,900
	Accounts payable			62,900
	(to record purchase of supplies)

Table (4)

• Since supplies is an asset and asset is increased. Hence, supplies account is debited.
• Since accounts payable is a liability and liability is increased. Hence, accounts payable is credited.

Recording purchase of supplies:

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
	Supplies		7,400
	Cash			7,400
	(to record purchase of supplies)

Table (5)

• Since supplies is an asset and asset is increased. Hence, supplies account is debited.
• Since cash is an asset and asset is decreased. Hence, cashaccount is credited.

Recording cash paid for wages:

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
	Wages payable		14,200
	Wages expense		112,000
	Cash			126,200
	(to record payment of wages)

Table (6)

• Since wages payable is a liability and liability is decreased. Hence, wages payable account is debited.
• Since wages expense is an expense and expense is increased. Hence, wages expense account is debited.
• Since cash is an asset and asset is decreased. Hence, cash account is credited.

Recording repayment of income tax payable:

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
	Income tax payable		15,100
	Cash			15,100
	(to record payment of income tax)

Table (7)

• Since income tax payable is a liability and liability is decreased. Hence, income tax payable account is debited.
• Since cash is an asset and asset is decreased. Hence, cash account is credited.

Recording repayment of accounts payable:

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
	Accounts payable		73,000
	Cash			73,000
	(to record repayment of accounts payable)

Table (8)

• Since accounts payable is a liability and liability is decreased. Hence, accounts payableaccount is debited.
• Since cash is an asset and asset is decreased. Hence, cash account is credited.

Recording payment of interest on notes payable:

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
	Interest expense		2,700
	Interest payable		2,700
	Cash $\left(60,000\times 9\%\right)$			5,400
	(to record interest payment)

Table (9)

• Since interest expense is an expense and expense is increased. Hence, interest expenseaccount is debited.
• Since interest payable is a liability and liability is decreased. Hence, interest payableaccount is debited.
• Since cash is an asset and asset is decreased. Hence, cash account is credited.

Recording withdrawal of cash for personal purposes:

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
	Drawings		7,000
	Cash			7,000
	(to record drawing)

Table (10)

• Since drawing is capital and capital is decreased. Hence, drawing account is debited.
• Since cash is an asset and asset is decreased. Hence, cash account is credited.

Recording property taxes:

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
	Property taxes		17,000
	Cash			17,000
	(to record property taxes)

Table (11)

• Since property taxes is an expense and expense is increased. Hence, property taxes account is debited.
• Since cash is an asset and asset is decreased. Hence, cash account is credited.

Recording dividend payment:

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
	Dividend		7,200
	Cash			7,200
	(to record dividend payment)

Table (12)

• Since dividend is an expense and expense is increased. Hence, dividend account is debited.
• Since cash is an asset and asset is decreased. Hence, cash account is credited.

Working Notes:

Computation of cash received from accounts receivables:

$\begin{array}{c}\text{Cash}=\text{Opening}\text{balance}+\text{Credit}\text{revenue}-\text{Closing}\text{balance}\\ =\$4,400+\$210,300-\$15,600\\ =\$199,100\end{array}$

Preparation of cash account in general ledger:

Cash
Date	Particular	Post Ref.	Debit($)	Credit($)	Balance($)
	Balance		2,200		2,200
	Stable rent service		20,500		22,700
	Ground rent service		41,800		64,500
	Accounts receivable		199,100		263,600
	Supplies			7,400	256,200
	Wages payable			14,200	242,000
	Wages expenses			112,000	130,000
	Income tax payable			15,100	114,900
	Accounts payable			73,000	41,900
	Interest expense			2,700	39,200
	Interest payable			2,700	36,500
	Drawings			7,000	29,500
	Property tax			17,000	12,500
	Dividend			7,200	5,300

Table (13)

Preparation of accounts receivable account in general ledger:

Accounts receivable
Date	Particular	Post Ref.	Debit($)	Credit($)	Balance($)
	Balance				4,400
	Care service		210,300		214,700
	Cash			199,100	15,600

Table (14)

Preparation of supplies account in general ledger:

Supplies
Date	Particular	Post Ref.	Debit($)	Credit($)	Balance($)
	Balance				27,800
	Accounts payable		62,900		90,700
	Cash		7,400		98,100

Table (15)

Preparation of land account in general ledger:

Land
Date	Particular	Post Ref.	Debit($)	Credit($)	Balance($)
	Balance				167,000

Table (16)

Preparation of building account in general ledger:

Building
Date	Particular	Post Ref.	Debit($)	Credit($)	Balance($)
	Balance				115,000

Table (17)

Preparation of accumulated depreciation account in general ledger:

Accumulated depreciation-Building
Date	Particular	Post Ref.	Debit($)	Credit($)	Balance($)
	Balance				$\left(36,000\right)$

Table (18)

Preparation of equipment account in general ledger:

Equipment
Date	Particular	Post Ref.	Debit($)	Credit($)	Balance($)
	Balance				57,000

Table (19)

Preparation of accumulated depreciation account in general ledger:

Accumulated depreciation-Equipment
Date	Particular	Post Ref.	Debit($)	Credit($)	Balance($)
	Balance				$\left(16,500\right)$

Table (20)

Preparation of accounts payable account in general ledger:

Accounts payable
Date	Particular	Post Ref.	Debit($)	Credit($)	Balance($)
	Balance				$\left(23,700\right)$
	Supplies			62,900	$\left(86,600\right)$
	Cash		73,000		$\left(13,600\right)$

Table (21)

Preparation of income tax payable account in general ledger:

Income tax payable
Date	Particular	Post Ref.	Debit($)	Credit($)	Balance($)
	Balance				$\left(15,100\right)$
	Cash		15,100		0

Table (22)

Preparation of interest payable account in general ledger:

Interest payable
Date	Particular	Post Ref.	Debit($)	Credit($)	Balance($)
	Balance				$\left(2,700\right)$
	Cash		2,700		0

Table (23)

Preparation of wages payable account in general ledger:

Wages payable
Date	Particular	Post Ref.	Debit($)	Credit($)	Balance($)
	Balance				$\left(14,200\right)$
	Cash		14,200		0

Table (24)

Preparation of notes payable account in general ledger:

Notes payable
Date	Particular	Post Ref.	Debit($)	Credit($)	Balance($)
	Balance				$\left(60,000\right)$

Table (25)

Preparation of common stock account in general ledger:

Common stock
Date	Particular	Post Ref.	Debit($)	Credit($)	Balance($)
	Balance				$\left(150,000\right)$

Table (26)

Preparation of retained earnings account in general ledger:

Retained earnings
Date	Particular	Post Ref.	Debit($)	Credit($)	Balance($)
	Balance				$\left(55,200\right)$

Table (27)

Preparation of Care service account in general ledger:

Care service
Date	Particular	Post Ref.	Debit($)	Credit($)	Balance($)
	Accounts receivable			210,300	$\left(210,300\right)$

Table (28)

Preparation of Stables rentservice account in general ledger:

Stables rent service
Date	Particular	Post Ref.	Debit($)	Credit($)	Balance($)
	Cash			20,500	$\left(20,500\right)$

Table (29)

Preparation of ground rent service account in general ledger:

Ground rent service
Date	Particular	Post Ref.	Debit($)	Credit($)	Balance($)
	Cash			41,800	$\left(41,800\right)$

Table (30)

Preparation of wages expense account in general ledger:

Wages expense
Date	Particular	Post Ref.	Debit($)	Credit($)	Balance($)
	Cash		112,000		112,000

Table (31)

Preparation of drawing account in general ledger:

Drawing
Date	Particular	Post Ref.	Debit($)	Credit($)	Balance($)
	Cash		7,000		7,000

Table (32)

Preparation of interest expense account in general ledger:

Interest expense
Date	Particular	Post Ref.	Debit($)	Credit($)	Balance($)
	Cash		2,700		2,700

Table (33)

Preparation of property tax account in general ledger:

Property tax expense
Date	Particular	Post Ref.	Debit($)	Credit($)	Balance($)
	Cash		17,000		17,000

Table (34)

Preparation of dividend account in general ledger:

Dividend expense
Date	Particular	Post Ref.	Debit($)	Credit($)	Balance($)
	Cash		7,200		7,200

Table (35)

To determine

To record: Adjusting entries. Also, post the adjustment entries in the respective T accounts.

Introduction: Adjusting entries are made at the end of reporting period at the time of preparation of financial statements. Adjusting entries are recorded to reflect the correct picture of financial position of the organization in the financial statements.

Explanation of Solution

Recording adjustment of supplies:

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
	Supplies Expense $\left(\$98,100-\$30,400\right)$		67,700
	Supplies			67,700
	(to record adjustment of supplies)

Table (36)

• Since supplies expense is an expense and expense is increased. Hence, supplies expense account is debited.
• Since supplies is an asset and asset is decreased. Hence, supplies account is credited.

Recording depreciation expense:

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
	Depreciation -Building		6,000
	Accumulated depreciation-Building			6,000
	(to record depreciation expense)

Table (37)

• Since depreciation is an expense and expense is increased. Hence, depreciation-Building account is debited.
• Since accumulated depreciation is a contra asset and contra asset is increased. Hence, accumulated depreciation-Building account is credited.

Recording depreciation expense:

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
	Depreciation -Equipment		5,500
	Accumulated depreciation-Equipment			5,500
	(to record depreciation expense)

Table (38)

• Since depreciation is an expense and expense is increased. Hence, depreciation-Equipment account is debited.
• Since accumulated depreciation is a contra asset and contra asset is increased. Hence, accumulated depreciation-Equipment account is credited.

Recording wages payable:

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
	Wages expense		4,000
	Wages payable			4,000
	(to record wages expense)

Table (39)

• Since wages expense is an expense and expense is increased. Hence, wages expense account is debited.
• Since wages payable is a liability and liability is increased. Hence, wages payable account is credited.

Recording interest expense:

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
	Interest expense		2,700
	Interest Payable			2,700
	(to record interest expense)

Table (40)

• Since interestexpense is an expense and expense is increased. Hence, interestexpense account is debited.
• Since interest payable is a liability and liability is increased. Hence, interest payable account is credited.

Recording income tax expense:

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
	Income tax expense		16,500
	Income tax payable			16,500
	(to record income tax expense)

Table (41)

• Since income tax is an expense and expense is increased. Hence, income tax account is debited.
• Since income tax payable is a liability and liability is increased. Hence, income tax payable account is credited.

Working Note:

Computation of interest payable:

$\begin{array}{c}\text{Interest}\text{payable}=\text{Note}\text{payable}\times \text{Interest}\text{rate}\times \text{Period}\\ \text{=\$60,000}\times 9\text{\%}\times \frac{6}{12}\\ =\$2,700\end{array}$

Preparation of cash account in general ledger:

Cash
Date	Particular	Post Ref.	Debit($)	Credit($)	Balance($)
	Balance		2,200		2,200
	Stable rent service		20,500		22,700
	Ground rent service		41,800		64,500
	Accounts receivable		199,100		263,600
	Supplies			7,400	256,200
	Wages payable			14,200	242,000
	Wages expenses			112,000	130,000
	Income tax payable			15,100	114,900
	Accounts payable			73,000	41,900
	Interest expense			2,700	39,200
	Interest payable			2,700	36,500
	Drawings			7,000	29,500
	Property tax			17,000	12,500
	Dividend			7,200	5,300

Table (42)

Preparation of accounts receivable account in general ledger:

Accounts receivable
Date	Particular	Post Ref.	Debit($)	Credit($)	Balance($)
	Balance				4,400
	Care service		210,300		214,700
	Cash			199,100	15,600

Table (43)

Preparation of supplies account in general ledger:

Supplies
Date	Particular	Post Ref.	Debit($)	Credit($)	Balance($)
	Balance				27,800
	Accounts payable		62,900		90,700
	Cash		7,400		98,100
	Supplies expense			67,700	30,400

Table (44)

Preparation of land account in general ledger:

Land
Date	Particular	Post Ref.	Debit($)	Credit($)	Balance($)
	Balance				167,000

Table (45)

Preparation of building account in general ledger:

Building
Date	Particular	Post Ref.	Debit($)	Credit($)	Balance($)
	Balance				115,000

Table (46)

Preparation of accumulated depreciation account in general ledger:

Accumulated depreciation-Building
Date	Particular	Post Ref.	Debit($)	Credit($)	Balance($)
	Balance				$\left(36,000\right)$
	Depreciation-building			6,000	$\left(42,000\right)$

Table (47)

Preparation of equipment account in general ledger:

Equipment
Date	Particular	Post Ref.	Debit($)	Credit($)	Balance($)
	Balance				57,000

Table (48)

Preparation of accumulated depreciation account in general ledger:

Accumulated depreciation-Equipment
Date	Particular	Post Ref.	Debit($)	Credit($)	Balance($)
	Balance				$\left(16,500\right)$
	Depreciation-equipment			5,500	$\left(22,000\right)$

Table (49)

Preparation of accounts payable account in general ledger:

Accounts payable
Date	Particular	Post Ref.	Debit($)	Credit($)	Balance($)
	Balance				$\left(23,700\right)$
	Supplies			62,900	$\left(86,600\right)$
	Cash		73,000		$\left(13,600\right)$

Table (50)

Preparation of income tax payable account in general ledger:

Income tax payable
Date	Particular	Post Ref.	Debit($)	Credit($)	Balance($)
	Balance				$\left(15,100\right)$
	Cash		15,100		0
	Income tax expense			16,500	$\left(16,500\right)$

Table (51)

Preparation of interest payable account in general ledger:

Interest payable
Date	Particular	Post Ref.	Debit($)	Credit($)	Balance($)
	Balance				$\left(2,700\right)$
	Cash		2,700		0
	Interest expense			2,700	$\left(2,700\right)$

Table (52)

Preparation of wages payable account in general ledger:

Wages payable
Date	Particular	Post Ref.	Debit($)	Credit($)	Balance($)
	Balance				$\left(14,200\right)$
	Cash		14,200		0
	Wages expense			4,000	$\left(4,000\right)$

Table (53)

Preparation of notes payable account in general ledger:

Notes payable
Date	Particular	Post Ref.	Debit($)	Credit($)	Balance($)
	Balance				$\left(60,000\right)$

Table (54)

Preparation of common stock account in general ledger:

Common stock
Date	Particular	Post Ref.	Debit($)	Credit($)	Balance($)
	Balance				$\left(150,000\right)$

Table (55)

Preparation of retained earnings account in general ledger:

Retained earnings
Date	Particular	Post Ref.	Debit($)	Credit($)	Balance($)
	Balance				$\left(55,200\right)$

Table (56)

Preparation of Care service account in general ledger:

Care service
Date	Particular	Post Ref.	Debit($)	Credit($)	Balance($)
	Accounts receivable			210,300	$\left(210,300\right)$

Table (57)

Preparation of Stables rentservice account in general ledger:

Stables rent service
Date	Particular	Post Ref.	Debit($)	Credit($)	Balance($)
	Cash			20,500	$\left(20,500\right)$

Table (58)

Preparation of ground rent service account in general ledger:

Ground rent service
Date	Particular	Post Ref.	Debit($)	Credit($)	Balance($)
	Cash			41,800	$\left(41,800\right)$

Table (59)

Preparation of wages expense account in general ledger:

Wages expense
Date	Particular	Post Ref.	Debit($)	Credit($)	Balance($)
	Cash		112,000		112,000
	Wages payable		4,000		116,000

Table (60)

Preparation of drawing account in general ledger:

Drawing
Date	Particular	Post Ref.	Debit($)	Credit($)	Balance($)
	Cash		7,000		7,000

Table (61)

Preparation of interest expense account in general ledger:

Interest expense
Date	Particular	Post Ref.	Debit($)	Credit($)	Balance($)
	Cash		2,700		2,700
	Interest payable		2,700		5,400

Table (62)

Preparation of property tax account in general ledger:

Property tax expense
Date	Particular	Post Ref.	Debit($)	Credit($)	Balance($)
	Cash		17,000		17,000

Table (63)

Preparation of dividend account in general ledger:

Dividend expense
Date	Particular	Post Ref.	Debit($)	Credit($)	Balance($)
	Cash		7,200		7,200

Table (64)

Preparation of supplies expense in general ledger:

Supplies expense
Date	Particular	Post Ref.	Debit($)	Credit($)	Balance($)
	Supplies		67,700		67,700

Table (65)

Preparation of depreciation expense account in general ledger:

Depreciation-building expense
Date	Particular	Post Ref.	Debit($)	Credit($)	Balance($)
	Accumulated depreciation-building		6,000		6,000

Table (66)

Preparation of depreciation expense account in general ledger:

Depreciation-equipment expense
Date	Particular	Post Ref.	Debit($)	Credit($)	Balance($)
	Accumulated depreciation-equipment		5,500		5,500

Table (67)

Preparation of income tax expense account in general ledger:

Income tax expense
Date	Particular	Post Ref.	Debit($)	Credit($)	Balance($)
	Income tax payable		16,500		16,500

Table (68)

To determine

To prepare: Income statement.

Introduction: Income statement is prepared to ascertain net income of a company for a period. Net income shows operating efficiency of a company.

Explanation of Solution

Preparation of income statement for the year ending 31^st December,2019:

CompanyA
Income Statement
	Amount ($)	Amount ($)
Revenues:
Care service	210,300
Stables rent service	20,500
Ground rent service	41,800
Total Revenue		272,600
Expenses:
Wages expense	116,000
Interest expense	5,400
Supplies expense	67,700
Property tax	17,000
Depreciation-building expense	6,000
Depreciation-equipment expense	5,500
Income tax expense	16,500
Total Expenses		234,100
Net Income		38,500

Table (69)

To determine

To prepare: Statement of retained earnings.

Introduction: Statement of retained earnings shows the net impact on retained earnings of the company, in a given period.

Explanation of Solution

Preparation of statement of retained earnings as on 31^st December,2019:

Company A
Statement of Retained Earning
	Amount($)	Amount($)
Owner’s Equity opening balance	55,200
Add: Capital introduced by owner
Add: Net income	38,500
Total:		93,700
Less: Withdrawals		$\left(7,000\right)$
Less: Dividend		$\left(7,200\right)$
Closing Balance		79,500

Table (70)

To determine

To prepare: Balance sheet of the company at the end of the accounting period.

Introduction: Balance sheet shows the status of assets and liabilities of the company, in which total assets equates with total liabilities and equity.

Explanation of Solution

Preparation of balance sheet as on 31^st December,2019:

Company A
Balance Sheet
	Amount ($)	Amount($)
Liabilities and Owners Equity
Current Liabilities
Accounts Payable	13,600
Wages Payable	4,000
Interest Payable	2,700
Income tax payable	16,500
Total Current Liabilities		36,800
Non-Current Liabilities
Note Payable (due in 2023)	60,000
Total Non-Current Liabilities		60,000
Total Liabilities
Common Stock	150,000
Retained Earnings	79,500	229,500
Total Liabilities and Owner’s Equity		326,300
Current Assets
Cash	5,300
Accounts Receivable	15,600
Supplies	30,400
Total Current Assets		51,300
Property, Plant and Equipment
Land	167,000
Building	115,000
Less: accumulated depreciation	$\left(42,000\right)$
Equipment	57,000
Less: accumulated depreciation	$\left(22,000\right)$
Total Property, Plant and Equipment		275,000
Total Assets		326,300

Table (71)

To determine

To record: closing journal entries.

Introduction: Closing entries are posted to close all the temporary accounts of the accounting books. Closing entries zeros the balances of income statement items, drawings, and dividends.

Explanation of Solution

Recording closing entry for expense accounts:

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
	Income summary		234,100
	Wages expense			116,000
	Interest expense			5,400
	Property tax expense			17,000
	Supplies expense			67,700
	Depreciation-building expense			6,000
	Depreciation-equipment expense			5,500
	Income tax expense			16,500
	(to record closing of expense accounts)

Table (72)

• Since income summary is a temporary income account and temporary income is decreased. Hence, income summary account is debited.
• Since wages expense is an expense and expense is decreased. Hence, wages expense account is credited.
• Since interest expense is an expense and expense is decreased. Hence, interest expense account is credited.
• Since property tax is an expense and expense is decreased. Hence, property tax account is credited.
• Since supplies expense is an expense and expense is decreased. Hence, supplies expense account is credited.
• Since depreceiation expense is an expense and expense is decreased. Hence, depreceiation -building expense account is credited.
• Since depreceiation expense is an expense and expense is decreased. Hence, depreceiation-equipment expense account is credited.
• Since income tax is an expense and expense is decreased. Hence, income tax account is credited.

Recording closing entry for revenue accounts:

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
	Care service		210,300
	Stables rent service		20,500
	Ground rent service		41,800
	Income summary			272,600
	(to record closing of revenue account)

Table (73)

• Since care service is an income and income is decreased. Hence, care service account is debited.
• Since stables rent service is an income and income is decreased. Hence, stables rent service account is debited.
• Since ground rent service is an income and income is decreased. Hence, ground rent serviceaccount is debited.
• Since income summary is a temporary income account and temporary income is increased. Hence, income summary account is credited.

Recording transfer of income summary account:

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
	Income summary		38,500
	Retained earnings			38,500
	(to record closing entry)

Table (74)

• Since income summary is a temporary income account and temporary income is decreased. Hence, income summary account is debited.
• Since retained earnings is a reserve and reserve is increased. Hence, retained earnings account is credited.

Transfering drawings and dividends to retained earnings:

Date	Account Title and Explanation	Post Ref.	Debit($)	Credit($)
	Retained earnings		14,200
	Drawings			7,000
	Dividend			7,200
	(to record closing entry)

Table (75)

• Since retained earnings is a reserve and reserve is decreased. Hence, retained earnings account is debited.
• Since drawings is capital and capital is increased. Hence, drawingss account is credited.
• Since dividends is expense and expense is decreased. Hence, dividends account is credited.

To determine

Whether the given transaction relating to personal expense should be recorded in the books or not.

Introduction: Personal expenses are incurred by the owners for their personal use by utilizing the resources of the company.

Explanation of Solution

Personal expenses should also be recorded in the books of the company because these expenses are incurred by using the cash of company. In case, such expenses are not included in the books then , cash account would not show the correct balance.

Personal expenses are shown as drawings by the owners and it is reduced from the owner’s funds. Therefore, it is necessary to record personal expenses, incurred by using the resources of company to show accurate and complete financial position.