Below is Lashburn Ltd.€™s summarized income statement for the year ended August 31, 2016, its first year in business.

a. Prepare a spreadsheet and make the entries necessary to close the temporary accounts.
b. Prepare the journal entry necessary to close the temporary accounts.
c. Explain why closing entries are necessary and when they should be recorded.
d. What would be the effect on net income in 2017 if Lashburn Ltd. forgot to prepare a closing entry in2016?

Transcribed Image Text:

Lashburn Ltd Income Statement for the Year Ended August 31, 2016 (in thousands of dollars) Sales Cost of sales Gross margin Expenses S225,720 76,200 149,520 Selling and marketing General and administrative Research and development Depreciation Interest Other S22,740 15,450 9,420 4,500 3.315 Income before taxes Income taxes Net income 65,100 84,420 30,390 S 54,030