Question

Closing Entries

After the accounts have been adjusted at June 30, the end of the fiscal year, the following balances were taken from the ledger of Classic Landscaping Co.:

Line Item Description Amount
Retained Earnings $1,100,000
Dividends 30,000
Fees Earned 975,000
Wages Expense 580,000
Rent Expense 120,000
Supplies Expense 31,600
Miscellaneous Expense 12,400

Journalize the two entries required to close the accounts. If an amount box does not require an entry, leave it blank

Answer 1

To close the accounts for Classic Landscaping Co., we need to make two journal entries: one to close the revenue accounts to the Income Summary account, and another to close the expense accounts and the Income Summary account to Retained Earnings.

**Closing Entry for Revenue Accounts:**

1. **Close Fees Earned to Income Summary**
- Debit: Fees Earned $975,000
- Credit: Income Summary $975,000

**General Journal Entry:**

| Date | Account | Debit | Credit |
|------------|---------------------|-------------|-------------|
| June 30 | Fees Earned | 975,000 | |
| | Income Summary | | 975,000 |

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**Closing Entry for Expense Accounts and Dividends:**

2. **Close all Expense Accounts to Income Summary and then close Income Summary to Retained Earnings**
- Debit: Income Summary (Total Expenses) $744,000 (calculated as Wages Expense + Rent Expense + Supplies Expense + Miscellaneous Expense)
- Credit: Wages Expense $580,000
- Credit: Rent Expense $120,000
- Credit: Supplies Expense $31,600
- Credit: Miscellaneous Expense $12,400

- **Close Income Summary to Retained Earnings**
- Debit: Income Summary $231,000 (this is the difference: Fees Earned - Total Expenses)
- Credit: Retained Earnings $231,000

**General Journal Entries:**

| Date | Account | Debit | Credit |
|------------|----------------------|-------------|-------------|
| June 30 | Income Summary | 744,000 | |
| | Wages Expense | | 580,000 |
| | Rent Expense | | 120,000 |
| | Supplies Expense | | 31,600 |
| | Miscellaneous Expense | | 12,400 |

| Date | Account | Debit | Credit |
|------------|----------------------|-------------|-------------|
| June 30 | Income Summary | 231,000 | |
| | Retained Earnings | | 231,000 |

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**Note:**

1. The total expenses ($580,000 + $120,000 + $31,600 + $12,400 = $744,000).
2. The net income is calculated as Total Revenues - Total Expenses = $975,000 - $744,000 = $231,000.
3. The dividends entry is not included in the closing entries as it is directly deducted from Retained Earnings.

This completes the closing entries for Classic Landscaping Co.