Week 5 — Closing Month 1: Three Statements and Four Closing Entries — Traditional alternative (no AI)

Instructors: publish this instead of the adaptive version if you prefer, and unpublish or delete the adaptive one.

Assignment 5 of the term — prepare the bicycle shop's Month 1 statements in order, classify its balance sheet, close its books, prove the post-closing trial balance, and set a founder straight about what the numbers mean.

This week you prepared the income statement, the statement of retained earnings, and the classified balance sheet in order, sorted accounts into temporary and permanent, journalized the closing entries through Income Summary, and proved the post-closing trial balance. In this assignment you work four short problems on the bicycle shop's month-end, interpret each one, and explain this week's ideas to someone who has them wrong. This week's lecture tutorial, quiz, discussion, and Accounting Workshop practise the same ideas from other angles. It builds on Week 4, where you made the shop's six adjusting entries and proved the adjusted trial balance at $37,650 on each side.

The task

This week's material is pinned. The financial statements are prepared from the adjusted trial balance in order: the income statement first, then the statement of retained earnings, then the balance sheet. Net income is a period's revenues minus its expenses; it measures what the business earned, not the cash it has. A dividend is a distribution to the owners, never an expense. A classified balance sheet separates current assets and current liabilities, those expected to turn into cash, be used up, or come due within one year or the operating cycle, from long-term items. Closing entries move the balances of the temporary accounts (revenues, expenses, and dividends) into Retained Earnings, through Income Summary for the revenues and expenses, and leave the permanent accounts open.

The running case is an illustrative, unnamed bicycle repair and sales shop, organized as a corporation by two founders; it describes no real business. Its adjusted trial balance at the end of Month 1 lists Cash $17,100, Accounts Receivable $1,050, Supplies $350, Prepaid Insurance $2,200, Equipment $12,000, Dividends $500, Rent Expense $1,500, Wages Expense $2,000, Supplies Expense $550, Insurance Expense $200, and Depreciation Expense $200 as debits, and Accumulated Depreciation $200, Accounts Payable $300, Wages Payable $400, Unearned Revenue $900, Common Stock $30,000, and Service Revenue $5,850 as credits.

One of the founders (an illustrative person) sends you this message: "We have $17,100 in the bank, so we made $17,100 this month. The $500 dividend is one more expense. And if we close the books, doesn't that wipe out everything and start us over at zero?" Your job is to answer the way this course would, starting from four small calculations on the shop's books.

Work these four problems, showing your arithmetic:

1. For Month 1 the bicycle shop has Service Revenue of $5,850 and total expenses of $4,450. What is the shop's net income for Month 1 in dollars?
2. The bicycle shop began Month 1 with no retained earnings, earned net income of $1,400, and paid a $500 dividend. What is its ending Retained Earnings for Month 1 in dollars?
3. At the end of Month 1 the bicycle shop has Cash of $17,100, Accounts Receivable of $1,050, Supplies of $350, and Prepaid Insurance of $2,200. What are its total current assets in dollars?
4. The bicycle shop's adjusted trial balance shows $37,650 on each side, and closing removes its $500 Dividends balance and its $4,450 of expenses from the debit side. What total does its post-closing trial balance show on each side in dollars?

Beside each answer, add one brief interpretation:

• Problem 1: prepare the income statement with its three-line heading (The bicycle shop, Income Statement, For Month 1), listing the five expenses; then explain why net income is not the $17,100 in Cash.
• Problem 2: prepare the statement of retained earnings; then explain why the dividend is not an expense and which statement the ending balance goes into next.
• Problem 3: complete the classified balance sheet: property, plant, and equipment after Accumulated Depreciation, total assets, current liabilities (say where Unearned Revenue goes), and stockholders' equity; then show that total liabilities plus total stockholders' equity equal total assets.
• Problem 4: write the four closing entries through Income Summary, debit first and credit second; then explain why Dividends closes straight to Retained Earnings, and why the post-closing total is $200 more than total assets.

Explain it to a non-expert

The founder means well and has three things wrong. Write a 3–5 sentence message that explains why the $17,100 in the bank is not the month's net income, why the $500 dividend is not an expense, and why closing the books resets only the revenue, expense, and dividend accounts while Cash, Equipment, and the other balance sheet accounts carry into Month 2. Name one limit, such as that net income is not cash the founders can spend, or that this course gives no tax or investment advice. Explain any technical term in everyday words. More than one good answer is possible.

For a different, ungraded example, imagine a friend who sells handmade candles at weekend markets and says, "I have $600 in my cash box, so I earned $600 this season." Model answer: "The cash box shows what you have on hand right now, not what you earned; some of it may be money you put in at the start, and some of what you earned may still be owed to you by a shop that bought on credit. To see what you earned, subtract what you spent on wax, wicks, and stall fees from what you sold. One caveat: this is a way to read your own numbers, not tax advice."

Use that pattern for the founder, with your own wording and evidence.

Show your arithmetic. A reader should be able to reproduce every number you report from the figures in the problems without guessing which figures or steps you used.

Deliverables

Submit a single report containing:

• the four results, each with the subtraction or sum shown and the brief interpretation the task names for that problem;
• the three statements — the income statement, the statement of retained earnings, and the classified balance sheet — each with its three-line heading;
• the four closing entries, each with the debit first, the credit second, and equal amounts;
• your message to the founder, explaining why the $17,100 in the bank is not net income, why the dividend is not an expense, and what closing resets and what it leaves open, with one limit; and
• a one-line restatement of the figures you used, so your results are reproducible.

Keep it to roughly two pages. Clear and correct beats long.

Choose how you show it. Present your report as written text, or as a recorded audio or video explanation of about three minutes with a transcript, or as a labelled spreadsheet of the statements and entries with a short explanation. Every form is graded by the same scoring criteria. Submit in any accessible file type or as a link; a recorded response may be submitted as audio or video with a transcript, or as text.

How you'll be graded

The full analytic rubric is attached to this assignment in Canvas.

Academic integrity and AI use

This version is designed to be completed without AI: do the arithmetic, the statements, the entries, the interpretations, and the writing yourself. You may use a calculator or a spreadsheet for the arithmetic. Check every entry so that its debits equal its credits, take every figure from the shop's adjusted trial balance, and give no tax or investment advice. Submitting work you did not write as your own, or copying another student's work, is an integrity violation under the course policy.

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