Question

Question 3

1.    Prepare the required closing entries for the following selected accounts from the records of ShipIT

Transportation Inc. at December 31, 2016.

Cost of services sold	$11,600
Accumulated depreciation	17,800
Selling, general, and administrative expense	6,900
Retained earnings, December 31, 2015	1,900
Service revenue	23,600
Depreciation expense	4,100
Other revenue	600
Income tax expense	400
Dividends	400
Income tax payable	300

2.    How much net income did ShipIT Transportation Inc. earn during the year ended December 31, 2016? Prepare a T-account for Retained Earnings to show the December 31, 2016 balance of Retained Earnings.

Answer 1

a)

INCOME STATEMENT
Service revenue	23600
Other revenue	600
Total revenue		24200
Less:expenses
Cost of services sold	11600
Selling, general, and administrative expense	6900
Depreciation expense	4100
Total expenses		(22600)
Income before income tax expense		1600
less:Income tax expense		(400)
Net income		1200

B)

RETAINED EARNING
Dividend	400	Retained earnings, December 31, 2015 (or January 1 ,2016)	1900
		Net Income	1200
		Retained earnings, December 31, 2016 (Balancing figure) {1900+1200-400}	2700

Note :

Accumulated depreciation is a contra asset account which is subtracted from gross plant asset .

Income tax payable is a current liability.