Question

Mark’s Bowling Alley’s adjusted trial balance as of December 31, 2018, is presented below:

Requirements

1. Prepare the closing entries for Mark’s Bowling Alley.

2. Prepare a post-closing trial balance.

3. Compute the current ratio for Mark’s Bowling Alley

Short answer

(1) Closing entries are mentioned in Step 1.

(2) Post closing trial balance is mentioned in Step 4.

(3) Current ratio equals to 2.40.

Step-by-step solution

Closing entries for the period

(1) Closing entries are as follows:

Date	Accounts and Explanation	Debit	Credit
Dec. 31	Service Revenue	$85,000
	Income Summary		$85,000
	To close revenue.
Dec. 31	Income Summary	$77,625
	Insurance Expense		$26,000
	Salaries Expense		$28,000
	Supplies Expense		$1,300
	Utilities Expense		$15,000
	Depreciation Expense—Equipment		$7,000
	Depreciation Expense—Building		$325
	To close expenses.
Dec. 31	Income Summary	$7,375
	Retained Earnings		$7,375
	To close Income Summary
Dec. 31	Retained Earnings	$31,000
	Dividends		$31,000
	To close Dividends

Calculation of net income

Net income is calculated as follows:

$$\begin{gathered} \mathbf{Net}\mathbf{}\mathbf{Income}\mathbf{=}\mathbf{Total}\mathbf{}\mathbf{Revenues}-\mathbf{Total}\mathbf{}\mathbf{Expenses} \\ \mathbf{=}\mathbf{\$}\mathbf{85}\mathbf{,}\mathbf{000}-\mathbf{\$}\mathbf{77}\mathbf{,}\mathbf{625} \\ \mathbf{=}\mathbf{\$}\mathbf{7}\mathbf{,}\mathbf{375} \end{gathered}$$

Calculation of ending balance of retained earnings

Ending balance of retained earnings is calculated as follows:

$$\begin{gathered} \mathbf{EndingBalance}\mathbf{=}\mathbf{BeginningBalance}+\mathbf{NetIncome}-\mathbf{Dividends} \\ \mathbf{=}\mathbf{\$}\mathbf{114}\mathbf{,}\mathbf{250}+\mathbf{\$}\mathbf{7}\mathbf{,}\mathbf{375}-\mathbf{\$}\mathbf{31}\mathbf{,}\mathbf{000} \\ \mathbf{=}\mathbf{\$}\mathbf{90}\mathbf{,}\mathbf{625} \end{gathered}$$

Post-Closing trial balance

(2) Post-closing trial balance is shown as follows:

MARK'S BOWLING ALLEY
Post-Closing Trial Balance
December 31, 2018
	Balance
Account Title	Debit	Credit
Cash	$20,000
Accounts Receivable	2,900
Prepaid Insurance	2,700
Office Supplies	1,150
Land	20,000
Building	145,000
Accumulated Depreciation—Building		$7,000
Equipment	43,000
Accumulated Depreciation—Equipment		20,000
Accounts Payable		4,800
Utilities Payable		625
Salaries Payable		3,800
Unearned Revenue		1,900
Common Stock		106,000
Retained Earnings		90,625
Total	$234,750	$234,750

Calculation of current ratio

(3) Current ratio is calculated as follows:

$$\begin{gathered} \mathbf{CurrentRatio}\mathbf{=}\frac{\mathbf{Cash}\mathbf{+}\mathbf{AccountsReceivable}\mathbf{+}\mathbf{PrepaidInsurance}\mathbf{+}\mathbf{OfficeSupplies}}{\mathbf{AccountsPayable}\mathbf{+}\mathbf{UtilitiesPayable}\mathbf{+}\mathbf{SalariesPayable}\mathbf{+}\mathbf{UnearnedRevenue}} \\ \mathbf{=}\frac{\mathbf{\$}\mathbf{20}\mathbf{,}\mathbf{000}\mathbf{+}\mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{900}\mathbf{+}\mathbf{\$}\mathbf{2}\mathbf{,}\mathbf{700}\mathbf{+}\mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{150}}{\mathbf{\$}\mathbf{4}\mathbf{,}\mathbf{800}\mathbf{+}\mathbf{\$}\mathbf{625}\mathbf{+}\mathbf{\$}\mathbf{3}\mathbf{,}\mathbf{800}\mathbf{+}\mathbf{\$}\mathbf{1}\mathbf{,}\mathbf{900}} \\ \mathbf{=}\mathbf{2}\mathbf{.}\mathbf{40} \end{gathered}$$