Robert Half International, Inc. is a global specialized staffing firm. Information adapted from the statement of earnings (in thousands, without earnings per share information) in its annual report for the year ended December 31, 2005, follows. The firm reported distributing cash (dividends) in the amount of $47,781,000 to the owners in 2005.

Revenues

Service revenues ..............$3,338,439

Interest Income .............. 10,948

Total revenues ...............$3,349,387

Expenses

Employee compensation and benefits ......$1,965,390

Selling, general, and administrative expenses ... 991,823

Income taxes ............... 154,304

Total expenses ...............$3,111,517

Net income .................$ 237,870

Required

1. Prepare in journal form the closing entries Robert Half would have made on December 31, 2005. Treat income taxes as an expense and cash distributions to owners as withdrawals.

2. Based on your handling of requirement 1 and the effect of expenses and cash distributions on owner’s capital, what theoretical reasons can you give for not including expenses and cash distributions in the same closing entry?