Johnson Company had the following account balances at the end of the most recent fiscal year: Cash: $4,300, Accounts Receivable: $1,200, Supplies: $200, Accounts Payable: $700, S. Johnson, Capital: $2,900, S. Johnson, Drawing: $300, Fees Income: $4,900, Rent Expense: $1,300, Advertising Expense: $1,000, Supplies Expense: $200. Assuming that these were the only accounts used by Johnson Company during the year, for which of the following steps in the closing process would a compound entry be necessary?
Step 1: Transfer Revenue Account Balances
Step 2: Transfer Expense Account Balances
Step 3: Transfer Net Income or Net Loss to Owner’s Equity
Step 4: Transfer the Drawing Account Balance to Capital

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andromache andromache · Answer 1 · 2021-04-21T04:21:06+02:00

Answer and Explanation:

The journal entries are shown below:

For step 1

Fees Income $ 4,900

To Income Summary $4,900

(Being revenue account is closed)

For step 2

Income Summary $2,500

To Rent Expense $1,300

To Advertising expense $1,000

To Supplies expense $200

(Being Expense account is closed )

For step 3

Income Summary ($4,900 - $2,500) $2,400

To Johnson`s Capital $2,400

(Being transfer net income to capital is recorded)

For Step 4

Johnson`s Capital $300

To Johnson`s Drawings $300

(Being closing of drawings to capital account is recorded)