James and Susan Morley recently converted a large turn-of-the-century house into a hotel and incorporated the business as Saginaw Enterprises. Their accountant is inexperienced and has made the following closing entries at the end of Saginaw€™s first year of operations:

Required:
1. Indicate what is wrong with the closing entries above.
2. Prepare the correct closing entries. Assume that all necessary accounts are presented above and that the amounts given are correct.
3. Explain why closing entries arenecessary.

Transcribed Image Text:

Income Summary 210,000 177,000 33,000 Service Revenue Accumulated Depreciation Depreciation Expense Income Taxes Expense Utilities Expense Wages Expense Supplies Expense Accounts Payable 33,000 8,200 12,700 66,000 31,000 4,500 Income Summary 155,400 Income Summary 54,600 Retained Earnings 54,600 Dividends 3,200 Income Summary 3,200