The income statement for Basket Weavers Inc. for the year ended June 30, 2012, is provided.
Basket Weavers Inc.
Income Statement
For the Year Ended June 30, 2012
Sales revenue. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 786,000
Cost of goods sold. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (402,000)
Selling and general expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (53,800)
Income before income taxes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 330,200
Income tax expense. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (115,570)
Net income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 214,630
1. Prepare a journal entry to close the accounts to Retained Earnings.
2. What problem may arise in closing the accounts if the information from the income statement is used?