The Gorman Group is a financial planning services firm owned and operated by Nicole Gorman

The Gorman Group is a financial planning services firm owned and operated by Nicole Gorman. As of October 31, 2014, the end of the current fiscal year, the accountant for The Gorman Group prepared an end-of-period spreadsheet (work sheet), part of which is shown below.


The Gorman Group
End-of-Period Spreadsheet
For the Year Ended October 31, 2014
Adjusted
Trial Balance
Account Title Dr. Cr.
Cash
Accounts Receivable
Supplies
Prepaid Insurance
Land
Buildings
Accumulated Depreciation—Buildings
Equipment
Accumulated Depreciation—Equipment
Accounts Payable
Salaries Payable
Unearned Rent
Nicole Gormanr, Capital
Nicole Gorman, Drawing
Service Fees
Rent Revenue
Salaries Expense
Depreciation Expense—Equipment
Rent Expense
Supplies Expense
Utilities Expense
Depreciation Expense—Buildings
Repairs Expense
Insurance Expense
Miscellaneous Expense
117,200
151,700
33,300
3,300
1,500
220,000
468,000
5,000
1,000,000
11,000
28,150
6,350
9,500
75,000
250,000
240,000
20,000
291,000
17,500
15,500
9,000
8,500
6,600
3,450
3,000
5,450
1,000,000



Instructions

1. Prepare an income statement, a statement of owner’s equity (no additional investments were made during the year), and a balance sheet.

2. Journalize the entries that were required to close the accounts at October 31.

3. If the balance of Nicole Gorman, Capital had instead increased $115,000 after the closing entries were posted, and the withdrawals remained the same, what would have been the amount of net income or net loss?



Answer:



THE GORMAN GROUP
Income Statement
For the Year Ended October 31, 2014
Revenues:
Service fees $468,000
Rent revenue 5,000
Total revenues $473,000
Expenses:
Salaries expense $291,000
Depreciation expense—equipment 17,500
Rent expense 15,500
Supplies expense 9,000
Utilities expense 8,500
Depreciation expense—buildings 6,600
Repairs expense 3,450
Insurance expense 3,000
Miscellaneous expense 5,450
Total expenses 360,000
Net income $113,000
THE GORMAN GROUP
Statement of Owner’s Equity
For the Year Ended October 31, 2014
Nicole Gorman, capital, November 1, 2013 $220,000
Net income for the year $113,000
Less withdrawals 20,000
Increase in owner’s equity 93,000
Nicole Gorman, capital, October 31, 2014 $313,000
 GORMAN GROUP
Balance Sheet
October 31, 2014
Assets Liabilities
Current assets: Current liabilities:
Cash $ 11,000 Accounts payable $33,300
Accounts receivable 28,150 Salaries payable 3,300
Supplies 6,350 Unearned rent 1,500
Prepaid insurance 9,500 Total liabilities $ 38,100
Total current assets $ 55,000
Property, plant, and equipment:
Land $ 75,000
Buildings $250,000 Owner’s Equity
Less accum. depreciation 117,200 132,800 Nicole Gorman, capital 313,000
Equipment $240,000
Less accum. depreciation 151,700 88,300
Total property, plant, and
equipment 296,100 Total liabilities and owner’s
Total assets $351,100 equity $351,100
2. 2014 Closing Entries
Oct. 31 Service Fees 468,000
Rent Revenue 5,000
Income Summary 473,000
31 Income Summary 360,000
Salaries Expense 291,000
Depreciation Expense—Equipment 17,500
Rent Expense 15,500
Supplies Expense 9,000
Utilities Expense 8,500
Depreciation Expense—Buildings 6,600
Repairs Expense 3,450
Insurance Expense 3,000
Miscellaneous Expense 5,450
31 Income Summary 113,000
Nicole Gorman, Capital 113,000
31 Nicole Gorman, Capital 20,000
Nicole Gorman, Drawing 20,000
3. $135,000 ($115,000 + $20,000) net income. The $115,000 increase is caused by
the net income of $135,000 less the $20,000 withdrawals.