Question

The adjusted trial balance of Stone Sign Company follows: Account Title Prepaid Rent Cash Debit Credit Office Supplies Equipment Accumulated Depreciation—Equipment Accounts Payable Salaries Payable Unearned Revenue Notes Payable (long-term) Common Stock Dividends Service Revenue Salaries Expense Rent Expense Depreciation Expense—Equipment Supplies Expense Balance \( 15,400 \) 85,500 \( 85,500 100 \) 7,000 3,800 4,300 4,200 800 48,800 17,300 1,400 3,700 1,500 1,400 60,000 300 400 Utilities Expense 600 Total STONE SIGN COMPANY Adjusted Trial Balance January 31, 2018 Requirements 1. Assume Stone Sign Company has a January 31 year-end. Journalize Stone’s closing entries at January 31. 2. How much net income or net loss did Stone Sign Company earn for the year ended January 31? How can you tell?

Short answer

(1) Closing entries are as follows:

Date	Accounts and Explanation	Debit	Credit
Dec. 31	Service Revenue	$17,300
	Income Summary		$17,300
	To close revenue.
Dec. 31	Income Summary	$6,400
	Salaries Expense		$3,700
	Rent Expense		$1,400
	Depreciation Expense—Equipment		$400
	Supplies Expense		$300
	Utilities Expense		$600
	To close expenses.
Dec. 31	Income Summary	$10,900
	Retained Earnings		$10,900
	To close Income Summary
Dec. 31	Retained Earnings	$800
	Dividends		$800
	To close Dividends

(2) Net income is $10,900 for the year. As total expenses exceed the total revenues, it results in net income.

Step-by-step solution

Explanation on Closing Entry

Closing entry is recorded at the end of the period to close balances of the permanent account.

Calculation of net income

Net income is calculated as follows:

$$\begin{gathered} \mathbf{NetIncome}\mathbf{=}\mathbf{TotalRevenues}-\mathbf{TotalExpenses} \\ \mathbf{=}\mathbf{\$}\mathbf{17}\mathbf{,}\mathbf{300}-\mathbf{\$}\mathbf{6}\mathbf{,}\mathbf{400} \\ \mathbf{=}\mathbf{\$}\mathbf{10}\mathbf{,}\mathbf{900} \end{gathered}$$