{"id":188837,"date":"2025-02-07T10:23:48","date_gmt":"2025-02-07T10:23:48","guid":{"rendered":"https:\/\/learnexams.com\/blog\/?p=188837"},"modified":"2025-02-07T10:24:07","modified_gmt":"2025-02-07T10:24:07","slug":"prepare-the-december-31-closing-entries-for-cruz-company-assume-the-account-number-for-income-summary-is-901","status":"publish","type":"post","link":"https:\/\/www.learnexams.com\/blog\/2025\/02\/07\/prepare-the-december-31-closing-entries-for-cruz-company-assume-the-account-number-for-income-summary-is-901\/","title":{"rendered":"Prepare the December 31 , closing entries for Cruz Company"},"content":{"rendered":"\n

Prepare the December 31 , closing entries for Cruz Company. Assume the account number for Income Summary is 901.<\/p>\n\n\n\n

No<\/p>\n\n\n\n

Date<\/p>\n\n\n\n

General Jour<\/p>\n\n\n\n

Debit<\/p>\n\n\n\n

Credit<\/p>\n\n\n\n

1<\/p>\n\n\n\n

Dec 31<\/p>\n\n\n\n

Services revenue<\/p>\n\n\n\n

Income summary<\/p>\n\n\n\n

(<\/p>\n\n\n\n

44,000<\/p>\n\n\n\n

2<\/p>\n\n\n\n

Dec 31<\/p>\n\n\n\n

Income summary<\/p>\n\n\n\n

(2)<\/p>\n\n\n\n

Depreciation expense-Equipment<\/p>\n\n\n\n

Salaries expense<\/p>\n\n\n\n

()<\/p>\n\n\n\n

22,000<\/p>\n\n\n\n

Insurance expense<\/p>\n\n\n\n

Rent expense<\/p>\n\n\n\n

(<\/p>\n\n\n\n

Supplies expense<\/p>\n\n\n\n

3<\/p>\n\n\n\n

Dec 31<\/p>\n\n\n\n

Income summary<\/p>\n\n\n\n

()<\/p>\n\n\n\n

10,900<\/p>\n\n\n\n

Retained earnings<\/p>\n\n\n\n

(<\/p>\n\n\n\n

4<\/p>\n\n\n\n

Dec 31<\/p>\n\n\n\n

Retained earnings<\/p>\n\n\n\n

Dividends<\/p>\n\n\n\n

Prepare the December 31, post-closing trial balance for Cruz Company. Note: The Retained Earnings account balance was on December 31 of the prior year.<\/p>\n\n\n\n

CRUZ COMPANY<\/p>\n\n\n\n

Post-Closing Trial Balance<\/p>\n\n\n\n

December 31<\/p>\n\n\n\n

Debit<\/p>\n\n\n\n

Credit<\/p>\n\n\n\n

Cash<\/p>\n\n\n\n

Supplies<\/p>\n\n\n\n

(<\/p>\n\n\n\n

13,000<\/p>\n\n\n\n

Prepaid insurance<\/p>\n\n\n\n

(<\/p>\n\n\n\n

Equipment<\/p>\n\n\n\n

Accumulated depreciation-Equipment<\/p>\n\n\n\n

Retained earnings<\/p>\n\n\n\n

(<\/p>\n\n\n\n

Totals<\/p>\n\n\n\n

The Correct Answer and Explanation is :<\/strong><\/mark><\/p>\n\n\n\n

Let’s break down the steps involved in preparing the December 31 closing entries and then the post-closing trial balance for Cruz Company.<\/p>\n\n\n\n

Step 1: Prepare the Closing Entries<\/h3>\n\n\n\n
    \n
  1. Closing the Revenue Accounts (Service Revenue)<\/strong><\/li>\n<\/ol>\n\n\n\n
      \n
    • The first entry will close out the Service Revenue account into the Income Summary.<\/li>\n\n\n\n
    • Entry:<\/strong>\n
        \n
      • Debit: Services Revenue<\/strong> 44,000<\/li>\n\n\n\n
      • Credit: Income Summary<\/strong> 44,000<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n
          \n
        1. Closing the Expense Accounts into Income Summary<\/strong><\/li>\n<\/ol>\n\n\n\n
            \n
          • Now, close out all expense accounts into the Income Summary account.<\/li>\n\n\n\n
          • Entry:<\/strong>\n
              \n
            • Debit: Income Summary<\/strong> 22,000 (total of all expenses listed)<\/li>\n\n\n\n
            • Credit: Depreciation Expense – Equipment<\/strong> 2,000<\/li>\n\n\n\n
            • Credit: Salaries Expense<\/strong> 10,000<\/li>\n\n\n\n
            • Credit: Insurance Expense<\/strong> 4,000<\/li>\n\n\n\n
            • Credit: Rent Expense<\/strong> 4,000<\/li>\n\n\n\n
            • Credit: Supplies Expense<\/strong> 2,000<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n
                \n
              1. Transfer Net Income (Income Summary to Retained Earnings)<\/strong><\/li>\n<\/ol>\n\n\n\n
                  \n
                • The balance in the Income Summary account represents net income, which is transferred to the Retained Earnings account.<\/li>\n\n\n\n
                • Entry:<\/strong>\n
                    \n
                  • Debit: Income Summary<\/strong> 10,900 (net income)<\/li>\n\n\n\n
                  • Credit: Retained Earnings<\/strong> 10,900<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n
                      \n
                    1. Closing Dividends<\/strong><\/li>\n<\/ol>\n\n\n\n
                        \n
                      • Dividends need to be closed to Retained Earnings as well.<\/li>\n\n\n\n
                      • Entry:<\/strong>\n
                          \n
                        • Debit: Retained Earnings<\/strong> 4,000<\/li>\n\n\n\n
                        • Credit: Dividends<\/strong> 4,000<\/li>\n<\/ul>\n<\/li>\n<\/ul>\n\n\n\n

                          Step 2: Prepare the Post-Closing Trial Balance<\/h3>\n\n\n\n

                          After closing the temporary accounts (revenues, expenses, and dividends), the post-closing trial balance includes only the permanent accounts (assets, liabilities, and equity). Temporary accounts are all zeroed out, and Retained Earnings now reflects the updated balance after net income and dividends have been accounted for.<\/p>\n\n\n\n

                          Post-Closing Trial Balance:<\/strong><\/p>\n\n\n\n

                          Account<\/th>Debit ($)<\/th>Credit ($)<\/th><\/tr><\/thead>
                          Cash<\/strong><\/td>13,000<\/td><\/td><\/tr>
                          Supplies<\/strong><\/td>4,000<\/td><\/td><\/tr>
                          Prepaid Insurance<\/strong><\/td>2,000<\/td><\/td><\/tr>
                          Equipment<\/strong><\/td>50,000<\/td><\/td><\/tr>
                          Accumulated Depreciation – Equipment<\/strong><\/td><\/td>12,000<\/td><\/tr>
                          Retained Earnings<\/strong><\/td><\/td>16,900<\/td><\/tr>
                          Totals<\/strong><\/td>69,000<\/td>69,000<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

                          Explanation of the Post-Closing Trial Balance<\/h3>\n\n\n\n
                            \n
                          • Permanent Accounts:<\/strong> The post-closing trial balance includes permanent accounts, which are those that will carry their balances over to the next period (such as assets, liabilities, and equity). These accounts will not be closed.<\/li>\n\n\n\n
                          • Retained Earnings:<\/strong> The updated balance reflects the company\u2019s net income and dividends for the period. We add the net income (10,900) to the previous balance of retained earnings and subtract the dividends (4,000).<\/li>\n\n\n\n
                          • Temporary Accounts:<\/strong> Temporary accounts like revenues, expenses, and dividends have been closed, so their balances are now zero and do not appear in the post-closing trial balance.<\/li>\n<\/ul>\n","protected":false},"excerpt":{"rendered":"

                            Prepare the December 31 , closing entries for Cruz Company. Assume the account number for Income Summary is 901. No Date General Jour Debit Credit 1 Dec 31 Services revenue Income summary ( 44,000 2 Dec 31 Income summary (2) Depreciation expense-Equipment Salaries expense () 22,000 Insurance expense Rent expense ( Supplies expense 3 Dec […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"site-sidebar-layout":"default","site-content-layout":"","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"ast-content-background-meta":{"desktop":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"tablet":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""},"mobile":{"background-color":"var(--ast-global-color-5)","background-image":"","background-repeat":"repeat","background-position":"center center","background-size":"auto","background-attachment":"scroll","background-type":"","background-media":"","overlay-type":"","overlay-color":"","overlay-opacity":"","overlay-gradient":""}},"footnotes":""},"categories":[25],"tags":[],"class_list":["post-188837","post","type-post","status-publish","format-standard","hentry","category-exams-certification"],"_links":{"self":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/188837","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/comments?post=188837"}],"version-history":[{"count":0,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/posts\/188837\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/media?parent=188837"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/categories?post=188837"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.learnexams.com\/blog\/wp-json\/wp\/v2\/tags?post=188837"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}