Chapter 10, Problem 1CP

a.

To determine

Prepare the general journal entry of Incorporation PSS.

Explanation of Solution

Journal entry:

Journal entry is a set of economic events which can be measured in monetary terms. These are recorded chronologically and systematically.

Accounting rules for Journal entries:

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

Prepare the general journal entry of Incorporation PSS as follows:

Event	Account titles and Explanation	Debit	Credit
1.	Sales tax payable	$290
	Cash		$290
	(To record sales taxes payable)
2.	Employee income tax payable	$500
	FICA social security tax payable	$600
	FICA Medicare tax payable	$150
	Unemployment Tax payable	$630
	Cash		$1,880
	(To record payment made for payroll liabilities)
3.	Building	$125,000
	Land	$25,000
	Cash		$50,000
	Notes payable		$100,000
	(To record purchase of land and building)
4.	Cash	$49,000
	Discount on bonds payable	$1,000
	Bonds payable		$50,000
	(To record issuance of bonds payable at discount)
5.	Supplies	$660
	Accounts payable		$660
	(To record purchase of supplies)
6.	Merchandise inventory	$51,000
	Cash		$51,000
	(To record purchase of 170 alarm systems)
7.	Allowance for doubtful accounts	$2,450
	Accounts receivable		$2,450
	(To record write off uncollectible accounts receivable)
8a.	Accounts receivable	$97,440
	Alarm sales revenue		$92,800
	Sales tax payable		$4,640
	(To record sales of alarm systems)
8b.	Cost of goods sold	$47,620
	Merchandise inventory		$47,620
	(To record the adjustment from cost to market value for inventory write-downs)
9.	Accounts receivable - credit card	$34,560
	Accounts receivable	$84,000
	Credit card expense		$120,000
	Monitoring service revenue
	(To record service rendered to monitoring services)
10.	Maintenance expense	$65
	Office supplies expense	$24
	Cash		$89
	(To record replenishment of petty cash fund)
11.	Cash	$34,560
	Accounts receivable - credit card		$34,560
	(To record cash received from credit card company)
12.	Sales tax payable	$4,250
	Cash		$4,250
	(To record sales tax paid to alarm services)
13.	Cash	$167,000
	Accounts receivable		$167,000
	(To record cash received from accounts receivable)
14.	Salaries expense	$82,000
	Employee income tax payable		$9,600
	FICA Tax - social security tax payable		$4,920
	FICA tax - Medicare tax payable		$1,230
	Cash		$66,250
	(To record payroll expenses)
15.	Warranty payable	$1,250
	Cash		$1,250
	(To record warranty expense)
16.	Notes payable	$12,000
	Interest Payable	$320
	Interest expense	$640
	Cash		$12,960
	(To record notes payable to Bank S)
17.	Advertising expense	$18,000
	Cash		$18,000
	(To record payment of advertising expense)
18.	Utilities expense	$5,600
	Cash		$5,600
	(To record payment of utilities expense)
19.	Payroll income tax expense	$5,625
	Employee income tax payable	$8,600
	FICA - Social security tax payable	$4,500
	FICA - Medicare tax payable	$1,125
	Cash		$19,850
	(To record payroll liabilities)
20.	Accounts payable	$660
	Cash		$660
	(To record cash paid for accounts payable)
21.	Interest expense	$3,200
	Discount on bonds payable		$200
	Cash		$3,000
	(To record payment of interest expenses made)
22.	Interest expense	$7,000
	Notes Payable	$7,238
	Cash		$14,238
	(To record payment of amortized note)
23.	Dividends	$10,000
	Cash		$10,000
	(To record payment of cash dividend)
24.	Supplies expense	$615
	Supplies		$615
	(To record adjustment entry for supplies)
25.	Rent expense	$3,000
	Prepaid rent		$3,000
	(To record adjustment for rent expense)
26.	Uncollectible accounts expense	$2,722
	Allowance for doubtful accounts		$2,722
	(To record adjustment for uncollectible accounts expense)
27.	Depreciation expense	$5,025
	Accumulated depreciation		$5,025
	(To record adjustment  entry for depreciation expense)
28.	Warranty expense	$1,856
	Warranty payable		$1,856
	(To record adjustment entry for warranty expense)
29.	Payroll tax expense	$945
	Unemployment tax payable		$945
	(To record adjustment entry for unemployment tax expense)
30.	Payroll tax expense	$525
	FICA - Social security tax payable		$420
	FICA - Medicare tax payable		$105
	(To record adjustment entry for payroll expense)

Table (1)

Working notes:

Calculate the cost of goods sold:

Cost of goods sold
Unit (A)	Cost per unit ($) (B)	Total $\left(\text{A×B}\right)$
38	290	$11,020
122	300	$36,600
Total		$47,620

Table (2) (1)

Calculate sales tax payable:

$\begin{array}{c}\text{Sales tax payable = Alarm sales }\times \text{Percent of sales tax}\\ \text{=}\text{\$85,000}\times \text{5\%}\\ \text{=}\text{\$4,250}\end{array}$ (2)

Calculate FICA – Social security tax payable:

$\begin{array}{c}\begin{array}{l}\text{FICA - Social security}\\ \text{ tax payable}\end{array})\text{ = Employee salaries }\times \text{Tax rate}\\ \text{= \$82,000}\times \text{6\%}\\ \text{= \$4,920}\end{array}$ (3)

Calculate FICA – Medicare tax payable:

$\begin{array}{c}\begin{array}{l}\text{FICA - Medicare}\\ \text{ tax payable}\end{array})\text{ = Employee salaries }\times \text{Tax rate}\\ \text{= \$82,000}\times 1.5\text{\%}\\ \text{= \$1,230}\end{array}$ (4)

Calculate FICA – Social security tax payable:

$\begin{array}{c}\begin{array}{l}\text{FICA - Payroll }\\ \text{incometax payable}\end{array})\text{ = Employee salaries }\times \text{Tax rate}\\ \text{= \$75,000}\times 7.5\text{\%}\\ \text{= \$5,625}\end{array}$ (5)

Calculate FICA – Social security tax payable:

$\begin{array}{c}\begin{array}{l}\text{FICA - Social security}\\ \text{ tax payable}\end{array})\text{ = Employee salaries }\times \text{Tax rate}\\ \text{= \$75,000}\times 6\text{\%}\\ \text{= \$4,500}\end{array}$ (6)

Calculate FICA – Medicare tax payable:

$\begin{array}{c}\begin{array}{l}\text{FICA - Medicare}\\ \text{ tax payable}\end{array})\text{ = Employee salaries }\times \text{Tax rate}\\ \text{= \$75,000}\times 1.5\text{\%}\\ \text{= \$1,125}\end{array}$ (7)

Calculate discount on bonds payable:

$\begin{array}{c}\text{Discount Amortization = }\frac{\text{Discount on bonds payable}}{\text{Time period}}\\ =\frac{\$1,000}{5}\\ =\$200\end{array}$ (8)

Calculate interest expense:

$\begin{array}{c}\text{Interest expene = Notes payable }\times \text{Interest rate}\\ \text{= \$100,000}\times \text{7\%}\\ \text{=}\text{\$7,000}\end{array}$ (9)

Calculate Cash paid:

$\begin{array}{c}\text{Cash paid = Face value of bonds }\times \text{Effective interest rate}\\ \text{=}\text{\$50,000}\times \text{6\%}\\ \text{=}\text{\$3,000}\end{array}$ (10)

Calculate the value of supplies expense

$\begin{array}{c}\text{Supplies expense = }\left(\begin{array}{l}\text{Opening balance of supplies + }\\ \text{Purchase of supplies}-\\ \text{Closing balance of supplies}\end{array}\right)\\ =\$165+\$660-\$210\\ =\$615\end{array}$ (11)

Calculate rent expense:

$\begin{array}{c}\text{Rent Expense = Office }\times \text{Time period}\\ \text{=}\text{\$9,000}\times \frac{4}{12}\\ =\$3,000\end{array}$ (12)

Calculate uncollectible accounts expense:

Particulars	Amount
Alarm sales on account	$97,440
Add: Monitoring service revenue	$84,000
Total credit sales (A)	$181,440
Estimated uncollectible percent (B)	1.5%
Uncollectible Account expense (A÷B)	$2,722

Table (3) (13)

Calculate the depreciation expense for equipment using straight line method:

$\begin{array}{c}\text{Depreciation expense of equipment}=\frac{\text{Bookvalue-Salvage value}}{\text{Estimated useful life}}\\ =\frac{\$9,000-\$2,000}{5}\\ =\$1,400\end{array}$ (14)

Calculation depreciation expense of van using double declining method:

$\begin{array}{c}\text{Depreciation expense of van}=\text{Van}\text{cost ×}\frac{\text{Number of life}}{\text{Estimated useful life}}\text{× 2}\\ =\left(\$27,000-\$20,250\right)\times \frac{2}{4}\times 2\\ =\$3,375\end{array}$

Note: Depreciation expense for Van limited to $750. (15)

Calculate depreciation expense of building using straight line method:

$\begin{array}{c}\text{Depreciation expense of Building}=\frac{\text{Bookvalue-Salvage value}}{\text{Estimated useful life}}\\ =\frac{\$125,000-\$10,000}{40}\\ =\$2,875\end{array}$ (16)

Calculation of total depreciation expense:

$\begin{array}{c}\begin{array}{l}\text{Total}\text{depreciation}\\ \text{expense}\end{array})\text{=}\left(\begin{array}{l}\text{Depreciation expense}\\ \text{ of equipment}\end{array}\right)\text{ + }\left(\begin{array}{l}\text{Depreciation expense}\\ \text{ of van}\end{array}\right)\\ \text{ + }\left(\begin{array}{l}\text{Depreciation expense}\\ \text{ of Building}\end{array}\right)\\ \text{=\$1,400+\$13,500}\text{+\$2,875}\\ \text{=\$5,025}\end{array}$ (17)

Calculate merchandise inventory on 1/15.

$\begin{array}{c}\text{Merchandise inventory = Units }\times \text{Cost per unit}\\ \text{= 20 units }\times \text{\$250}\\ \text{= \$5,000}\end{array}$ (18)

Calculate merchandise inventory on 8/1.

$\begin{array}{c}\text{Merchandise inventory = Units }\times \text{Cost per unit}\\ \text{= 25 units }\times \text{\$260}\\ \text{= \$6,500}\end{array}$ (19)

Calculate merchandise inventory on 9/5.

$\begin{array}{c}\text{Merchandise inventory = Units }\times \text{Cost per unit}\\ \text{= 30 units }\times \text{\$265}\\ \text{= \$7,950}\end{array}$ (20)

Calculate total cost of goods sold.

Particulars	Units (A)	Per unit (B)	Amount (A×B)
Beginning inventory	9	$240	$2,160
Add: Inventory purchased (1/15)	20	$250	$5,000
Inventory purchased (8/1)	25	$260	$6,500
Inventory purchased	6	$265	$1,590
Total cost of goods sold	60		$15,250

Table (4)

…… (21)

Calculate supplies expense.

$\begin{array}{c}\text{Supplies expense =}\text{Purchase of supplies }-\text{Ending balance of supplies }\\ \left(\text{\$150 + \$500}\right)-\$200\\ =\$450\end{array}$

…… (22)

Calculate rent expense.

$\begin{array}{c}\text{Rent expense = Expired van lease paid +}\text{Expired rent paid (Year 4 and Year 5)}\\ \text{= \$4,000}\text{+}\left(\$2,000+\$4,800\right)\\ =\$10,800\end{array}$ (23)

Calculate Expired van lease payment.

$\begin{array}{c}\text{Expired van lease payment = Van}\times \text{Time period}\\ \text{= \$4,800 }\times \frac{10\text{months}}{12\text{months}}\\ =\$4,000\end{array}$ (24)

Calculate expired office rent payment for year 4 and year 5.

$\begin{array}{c}\text{Expired office rent payment for Year 4 = Office}\times \text{Time period}\\ \text{= \$6,000 }\times \frac{4\text{months}}{12\text{months}}\\ =\$2,000\end{array}$ (25)

$\begin{array}{c}\text{Expired office rent payment for Year 5 = Office}\times \text{Time period}\\ \text{= \$7,200 }\times \frac{8\text{months}}{12\text{months}}\\ =\$4,800\end{array}$ (26)

Calculate unearned revenue.

$\begin{array}{c}\text{Unearned revenue = Monitoring service revenue }\times \text{Time period}\\ \text{= \$1,200 }\times \frac{3\text{months}}{12\text{months}}\\ =\$300\end{array}$ (27)

Calculate warranty expenses:

$\begin{array}{c}\text{Warranty}\text{Expenses}\text{=}\left(\begin{array}{l}\text{Sale of}\text{Company P (alarm systems)×}\\ \text{Estimated}\text{warranty}\text{cost}\end{array}\right)\\ \text{=}\text{\$92,800×2\%}\\ \text{=}\text{\$1,856}\end{array}$ (28)

Note: Sale of Company p ($92,800) = $\left(\text{160}\text{units}\text{×\$560}\right)$

Calculate Payroll tax Expense:

$\begin{array}{c}\text{Payroll}\text{tax}\text{expense}\text{=}\left[\begin{array}{l}\left(\begin{array}{l}\text{Amount}\text{of}\text{unpaid}\text{payroll}\text{tax}\text{on}\text{salaries}\text{×}\\ \text{Percentage}\text{of}\text{social}\text{securitytax}\text{payable}\end{array}\right)\text{+}\\ \left(\begin{array}{l}\text{Amount}\text{of}\text{unpaid}\text{payroll}\text{tax}\text{on}\text{salaries}\text{×}\\ \text{Medical}\text{care}\text{tax}\text{payable}\end{array}\right)\end{array}\right]\\ \text{=}\left[\left(\text{\$7,000×6\%}\right)\text{+}\left(\text{\$7,000×1}\text{.05\%}\right)\right]\\ \text{=}\text{\$420+\$105}\\ \text{=\$525}\end{array}$ (29)

b.

To determine

Post the transactions of T-Accounts for Incorporation PSS.

Explanation of Solution

T-account:

T-account is the form of the ledger account, where the journal entries are posted to this account. It is referred to as the T-account, because the alignment of the components of the account resembles the capital letter ‘T’.

The components of the T-account are as follows:

a)      The title of the account

b)      The left or debit side

c)      The right or credit side

Post the transactions of T-Accounts for Incorporation PSS as follows:

Cash
Bal.	122,475			1.				290
4.		49,000		2.				1,880
11.	34,560			3.				50,000
13.	167,000			6.				51,000
				10.				89
				12.				4,250
				14.				66,250
				15.				1,250
				16.				12,960
				17.				18,000
				18.				5,600
				19.				19,850
				20.				660
				21.				3,000
				22.				14,238
				23.				10,000
Bal.	113,718
Petty Cash
Bal.	100
Accounts Receivable
Bal.	27,400
8a.			97,440			7.	2,450
9			84,000			13.	167,000
Bal.			39,390
Accounts Rec. Credit Cards
9.			34,560			11.	34,560
Bal.			-0-
Allow. for Doubt. Accounts
7.			2,450			Bal.	4,390
						26.	2,722
						Bal.	4,662

	Supplies
	Bal.				165
	5.				660							24.								615
	Bal.				210
	Prepaid Rent
	Bal.				3,000
												25.								3,000
	Bal.				-0-
	Merchandise Inventory
	Bal.				11,020							8b.								47,620
	6.				51,000
	Bal.				14,400
	Equipment
	Bal.				9,000
	Van
	Bal.				27,000
	Accumulated Depreciation
												Bal.								23,050
												27.								5,025
												Bal.								28,075
	Building
	3.			125,000
	Bal.			125,000
	Land
	3.		25,000
	Bal.			25,000
	Accounts Payable
	20.		660			5.							660
						Bal.							-0-
	Employee Inc. Tax Pay.
							Bal.						500
	2.		500				14.						9,600
	19.		8,600
							Bal.						1,000
	FICA - S. S. Tax Pay
							Bal.						600
	2.		600				14.						4,920
	19.		4,500				30.						420
							Bal.						840
	FICA - Med. Tax. Pay
							Bal.						150
	2.		150				14.						1,230
	19.		1,125				30.						105
							Bal.						210
	Sales Tax Payable
							Bal.						290
	1.		290				8a.						4,640
	12.		4,250
							Bal.						390
	Warranty Payable
							Bal.						312
	15.		1,250				28.						1,856
							Bal.						918
	Unemployment Tax Pay.
							Bal.						630
	2.		630				29.						945
							Bal.						945
	Interest Payable
							Bal.						320
	16.		320
							Bal.						-0-
	Notes Payable
						Bal.							12,000
	16.		12,000
						Bal.							-0-
	Notes Payable - Bldg.
	22.		7,238				3.						100,000
							Bal.						92,762
	Bonds Payable
							4.						50,000
						Bal.							50,000
	Discount on Bonds Pay.
	4.		1,000			21.							200
	Bal.		800
	Common Stock
								Bal.									50,000
	Retained Earnings
									Bal.							107,918
	Dividends
	23.		10,000
	Bal.		10,000
	Alarm Sales Revenue
									8a.								92,800
									Bal.								92,800
	Monitoring Service Rev.
									9.							120,000
									Bal.							120,000
	Cost of Goods Sold
	8b.			47,620
	Bal.			47,620
	Advertising Expense
	17.		18,000
	Bal.		18,000
	Credit Card Expense
	9.			1,440
	Bal.			1,440
	Depreciation Expense
	27.		5,025
	Bal.		5,025
	Maintenance Expense
	10.			65
	Bal.			65
	Payroll Tax Expense
	19.			5,625
	29.			945
	30.			525
	Bal.			7,095
	Office Supplies Expense
	10.			24
	Bal.			24
	Rent Expense
	25.			3,000
	Bal.			3,000
	Salaries Expense
	14.			82,000
	Bal.			82,000
	Supplies Expense
	24.			615
	Bal.			615
	Uncollectible Accts. Exp.
	26.			2,722
	Bal.			2,722
	Utilities Expense
	18.			5,600
	Bal.			5,600
	Warranty Expense
	28.			1,856
	Bal.			1,856
	Interest Expense
	16.			640
	21.			3,200
	22.			7,000
	Bal.			10,840

c.

To determine

Prepare trail balance of Incorporation PSS.

Explanation of Solution

Trial balance:

A trial balance is the summary of all the ledger accounts. The trial balance is prepared to check the total balance of the debit column with the total of the balance of the credit column, which must be equal. The trial balance is usually prepared to check accuracy of ledger accounts balances before the preparation of financial statements.

Prepare trail balance of Incorporation PSS as follows:

Incorporation PSS
Trail Balance
December 31, Year 10
Particulars	Debit	Credit
Cash	$113,718
Petty Cash	$100
Accounts receivable	$39,390
Allowance for doubtful accounts		$4,662
Supplies	$210
Merchandise inventory	$14,400
Equipment	$9,000
Van	$27,000
Building	$125,000
Accumulated depreciation		$28,075
Land	$25,000
Sales tax payable		$390
Employee Income tax payable		$1,000
FICA - Social security tax payable		$840
FICA - Medicare tax payable		$210
Warranty payable		$918
Unemployment tax payable		$945
Notes payable		$92,762
Bonds payable		$50,000
Discount on bonds payable	$800
Common stock		$50,000
Retained earnings		$107,918
Dividend	$10,000
Alarms Sales Revenue		92,800
Monitoring Service Revenue		120,000
Cost of Goods Sold	47,620
Advertising Expense	18,000
Credit Card Expense	1,440
Depreciation Expense	5,025
Maintenance Expense	65
Payroll Tax Expense	7,095
Office Supplies Expense	24
Rent Expense	3,000
Salaries Expense	82,000
Supplies Expense	615
Uncollectible Accounts Expense	2,722
Utilities Expense	5,600
Warranty Expense	1,856
Interest Expense	10,840
Total	$550,520	$550,520

Table (5)

d.

To determine

Prepare an income statement, statement of changes in stockholders’ equity, balance sheet, and statement of cash flows of Incorporation PSS.

Explanation of Solution

Income statement:

Income statement is a financial statement that shows the net income or net loss by deducting the expenses from the revenues and vice versa.

Prepare the income statement of Incorporation PSS as follows:

Incorporation PSS
Income Statement
December 31, Year 10
Particulars	Amount	Amount
Revenue:
Monitoring service revenue	$120,000
Alarm sales revenue	$92,800
Total revenue		$212,800
Less: Cost of goods sold		$47,620
Gross margin		$165,180
Less: Expenses:
Advertising expense	$18,000
Credit card expense	$1,440
Depreciation expense	$5,025
Maintenance expense	$65
Office supplies expense	$24
Payroll tax expense	$7,095
Rent expense	$3,000
Salaries expense	$82,000
Supplies expense	$615
Uncollectible accounts expense	$2,722
Utilities expense	$5,600
Warranty expense	$1,856
Total Operating expenses		$127,442
Net operating income		$37,738
Less: Non -operating expense
Interest expense		$10,840
Net income		$26,898

Table (6)

Statement of changes in Stockholder’s equity:

This statement reports the beginning stockholders’ equity and all the changes, which led to ending stockholders’ equity. Additional capital, net income from income statement is added to and drawings are deducted from beginning stockholders’ equity to arrive at the result, ending stockholders’ equity.

Prepare the statement of changes in stockholders’ equity of Incorporation PSS as follows:

Incorporation PSS
Statement of Changes in Stockholders' Equity
December 31, Year 10
Particulars	Amount	Amount
Opening common stock	$50,000
Add: Common stock issued	$0
Ending Common stock		$50,000
Opening retained earnings	$107,918
Add: Net income	$26,898
Less: Dividends	$10,000
Ending Retained earnings		$124,816
Total stockholders' equity		$174,816

Table (7)

Balance Sheet:

Balance Sheet summarizes the assets, the liabilities, and the Shareholder’s equity of a company at a given date. It is also known as the statement of financial status of the business.

Prepare the Balance sheet of Incorporation PSS as follows:

Incorporation PSS
Balance Sheet
December 31, Year 10
	Amount	Amount
Assets:
Cash		$113,718
Petty cash		$100
Accounts Receivable	$39,390
Less: Allowance for doubtful accounts	$4,662	$34,728
Supplies		$210
Merchandise inventory		$14,400
Equipment		$9,000
Van		$27,000
Building	$125,000
Less: Accumulated depreciation	$28,075	$96,925
Land		$25,000
Total Assets		$321,081
Liabilities:
Employee income tax payable		$1,000
FICA social security tax payable		$840
FICA - Medicare tax payable		$210
Sales Tax payable		$390
Warranty payable		$918
Unemployment tax payable		$945
Notes payable		$92,762
Bonds payable	$50,000
Less: Discount on bonds payable	$800	$49,200
Total liabilities		$146,265
Stockholders' equity
Common stock	$50,000
Retained earnings	$124,816
Total stockholders' equity		$174,816
Total liabilities and stockholders' equity		$321,081

Table (8)

Statement of cash flows:

Statement of cash flows reports all the cash transactions which are responsible for inflow and outflow of cash and result of these transactions is reported as ending balance of cash at the end of reported period.

Prepare the statement of cash flows for Incorporation PSS as follows:

Incorporation PSS
Statement of Cash Flows
December 31, Year 10
Particulars	Amount	Amount
Cash flows from Operating Activities:
Cash receipts from customers	$201,560
Cash payment for expenses	($164,579)
Cash payment for sales tax payable	($4,540)
Cash payment for interest	($10,960)
Net cash flow from Operating Activities		$21,481
Cash flow from Investing Activities:
Cash payment for building and land	($50,000)
Net cash flow from Investing Activities		($50,000)
Cash flow from Financing Activities:
Cash inflow from bonds	$49,000
Cash payment on Notes payable	($19,238)
Cash payment for dividends	($10,000)
Net cash flow from Financing Activities		$19,762
Net decrease in cash		($8,757)
Add: Opening cash balance		$122,475
Ending cash balance		$113,718

Table (9)

Working notes:

Calculate total cash from customers.

Particulars	Amount
Collection of Accounts Receivable	$167,000
Add: Collection of credit cards	$34,560
Total cash from customers	$201,560

Table (10)

…… (11)

Calculate total cash payment for expenses.

Particulars	Amount
Payment of compensation and related taxes	$87,980
Payment of inventory	$51,000
Payment of accounts payable	$660
Payment of advertising	$18,000
Payment for Utilities expense	$5,600
Payment for warranty expense	$1,250
Payment for Expense from petty cash	$89
Total cash payment for expenses	$164,579

Table (11)

…… (12)

e.

To determine

Prepare to close the temporary accounts to retained earnings of Incorporation PSS.

Explanation of Solution

Closing entries:

Closing entries are recorded in order to close the temporary accounts such as incomes and expenses by transferring them to the permanent accounts. It is passed at the end of the accounting period, to transfer the final balance.

Prepare to close the temporary accounts to retained earnings of Incorporation PSS as follows:

Date	Account titles and Explanation	Debit	Credit
December 31	Alarm sales revenue	$92,800
	Monitoring service revenue	$120,000
	Retained earnings		$212,800
	(To close all revenue accounts)
December 31	Retained earnings	$185,902
	Cost of goods sold		$47,620
	Advertising expense		$18,000
	Credit card expense		$1,440
	Depreciation expense		$5,025
	Maintenance expense		$65
	Office supplies expense		$24
	Payroll tax expense		$7,095
	Rent expense		$3,000
	Salaries expense		$82,000
	Supplies expense		$615
	Uncollectible accounts expense		$2,722
	Utilities expense		$5,600
	Warranty expense		$1,856
	Interest Expense		$10,840
	(To close all expenses accounts)
December 31	Retained earnings	$10,000
	Dividends		$10,000
	(To record dividend account)

Table (12)

f.

To determine

Post the closing entries to the T-Accounts and prepare an after closing trail balance of Incorporation PSS.

Explanation of Solution

Post-Closing Trial Balance:

After passing all the journal entries and the closing entries of the permanent accounts and then further posting them to each of the respective accounts, a post-closing trial balance is prepared which consists of a list of all the permanent accounts. A post-closing trial balance serves as an evidence to prove that the balance of the permanent accounts is equal.

Post the closing entries to the T- Accounts of Incorporation PSS as follows:

Prepare post -closing trail balance of Incorporation PSS as follows:

Incorporation PSS
Trail Balance
December 31, Year 10
Particulars	Debit	Credit
Cash	$113,718
Petty Cash	$100
Accounts receivable	$39,390
Allowance for doubtful accounts		$4,662
Supplies	$210
Merchandise inventory	$14,400
Equipment	$9,000
Van	$27,000
Building	$125,000
Accumulated depreciation		$28,075
Land	$25,000
Sales tax payable		$390
Employee Income tax payable		$1,000
FICA - Social security tax payable		$840
FICA - Medicare tax payable		$210
Warranty payable		$918
Unemployment tax payable		$945
Notes payable		$92,762
Bonds payable		$50,000
Discount on bonds payable	$800
Common stock		$50,000
Retained earnings		$124,816
Total	$354,618	$354,618

Table (13)