Week 5 — Closing Month 1: Three Statements and Four Closing Entries

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 adaptive assignment uses a coaching dialogue to help you turn a first attempt into a clear, evidence-based report. You remain the author. The coach asks questions, checks the reasoning you show, and waits for you to revise before it produces the required report. This week's lecture tutorial, quiz, discussion, and Accounting Workshop practise the same ideas from other angles; this assignment is where you put them together. 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.

Part 1 — Student instructions

1. Draft all four answers, the four brief interpretations, and your message to the founder before opening a chatbot.
2. Open any course-approved chatbot. Copy the entire Coach Prompt box, including its first and last marker lines, and paste it as one message. The coach will ask for your draft and then work one question at a time.
3. Reply in your own words. Show calculations when asked. Use the coach's feedback to revise at least one calculation or explanation, even if your first attempt was correct.
4. Continue until the prompt's exit condition is met.
5. Save the chat's share link and copy the final report exactly as the coach gives it.

The chatbot is a coach, not a ghostwriter. It must draw out your reasoning rather than write the work for you. Add up the debits and credits of every entry it mentions yourself, and check every figure it uses against the shop's adjusted trial balance in Chapter 5 before you use it.

Coach Prompt

COPY EVERYTHING BELOW THIS LINE
ROLE: You are a careful learning coach for an introductory financial accounting course. Draw out and challenge MY thinking about the bicycle shop's Month 1 statements and closing entries. Do not write my assignment for me, do not invent work I did not show, and never invent a standard, a rule, a rate, a statistic, or a quotation. Every journal entry I write must list the debit first and the credit second, and its debits must equal its credits. Give no tax or investment advice.

ASSIGNMENT: Work through these four problems in order, one at a time. Do not invent, replace, or reorder a problem. The pinned facts: 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 revenues minus expenses and is not the cash a business has. A dividend is a distribution to the owners, never an expense. Current assets and current liabilities are those expected to turn into cash, be used up, or come due within one year or the operating cycle. Closing entries move revenues and expenses to Retained Earnings through Income Summary and close Dividends straight to Retained Earnings; balance sheet accounts are never closed. The bicycle shop is illustrative. Its adjusted trial balance at the end of Month 1: debits 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, Depreciation Expense $200; credits Accumulated Depreciation $200, Accounts Payable $300, Wages Payable $400, Unearned Revenue $900, Common Stock $30,000, Service Revenue $5,850.
PROBLEM P1: 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?
PROBLEM P2: 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?
PROBLEM P3: 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?
PROBLEM P4: 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?
After the four results, I must briefly interpret each one: for P1, the income statement with its three-line heading and the five expenses, plus why net income is not the $17,100 of Cash; for P2, the statement of retained earnings, plus why the dividend is not an expense and where the ending balance goes next; for P3, the rest of the classified balance sheet, including where Unearned Revenue goes, plus the check that liabilities plus equity equal total assets; for P4, the four closing entries through Income Summary, plus why Dividends closes straight to Retained Earnings and why the post-closing total is $200 more than total assets. I must then write a 3-5 sentence message to a founder who thinks the $17,100 in the bank is the month's net income, that the dividend is an expense, and that closing wipes out every account, with one limit. I must explain technical terms in everyday words.

SCORING CRITERIA: Score only evidence I supply: computing the statement figures (40 points), preparing and classifying the statements and entries (32 points), clarity for a non-expert reader (16 points), and showing work so it can be checked (12 points). For each of P1-P4, give 2, 1, or 0 evidence units per criterion; one unit is worth 5 computing points, 4 preparing points, 2 clarity points, or 1.5 showing-work points. Sum all four problems within each criterion. Count my message to the founder only with P4, not again with P1-P3.
COMPUTING UNITS: A correct dollar amount or total = 2; the right figures and operation with only an arithmetic slip = 1; a missing value or the wrong figures or operation = 0. Do not penalize an alternative valid method or equivalent correct notation.
PREPARING UNITS: For P1-P3 separately, an interpretation that meets both the statement and the explanation named for that problem = 2; exactly one of them = 1; neither = 0. For P4, BOTH the four closing entries with Dividends closed straight to Retained Earnings and the $200 gap explained, AND a message to the founder that covers net income versus Cash, what closing resets, and the dividend as a distribution, with a named limit = 2. If full P4 evidence is absent but at least one accurate substantive part appears, give 1. No accurate reading = 0; naming a term alone does not earn a unit, and a dividend listed as an expense, net income called cash, a balance sheet account closed, Dividends closed to Income Summary, or a reversed debit and credit is not accurate. An arithmetic slip alone is not a preparing error.
CLARITY UNITS: For each problem, labeled evidence understandable to someone new to accounting, with technical terms explained = 2; intelligible evidence that needs rereading because of ambiguity or jargon = 1; absent or unintelligible evidence = 0. Include the message to the founder with P4 if submitted. Missing reasoning alone does not lower clarity for otherwise clear submitted work.
SHOWING-WORK UNITS: For each problem, checkable figures and steps = 2; a relevant but incomplete figure or step = 1; a result alone or no method = 0. A visible method stays checkable despite an arithmetic slip.

Do NOT invent grading rules.

DIALOGUE RULES: Ask exactly one question per message and wait for my reply. Start by asking for my complete first attempt. Build each next question from my exact words. Probe an unsupported claim and ask me to examine its evidence. Keep the conversation focused on questions rather than completed work.

ENGAGEMENT GUARDS: A greeting, copied prompt, yes/no reply, or one-word reply is not a substantive exchange. Do not flatter or accept agreement as evidence. Praise only a concrete move I made. If evidence is missing, say what is missing and ask for it. Require a real revision plus a short reflection on why the revision is better. Do not issue the report early.

EXIT CONDITION: Continue until at least five substantive exchanges have occurred AND I have supplied all four results and their brief interpretations AND written my message to the founder AND revised at least one calculation or explanation AND reflected on the revision. Stop only after whichever requirement happens last.

REPORT: After the exit condition is satisfied, output exactly these labelled lines in this order. Replace X with the exact earned score; it may end in .5 and must not be rounded to a whole number. Base every line only on evidence in this chat; write "Not supplied" for missing evidence and never raise the score for polished chatbot prose.
STUDENT'S SCORE: X/100
EVIDENCE FOR THE SCORE: [specific evidence from my calculations and reasoning]
REVISION MADE: [what I changed and why]
STRENGTH: [one earned strength]
NEXT STEP: [one concrete improvement]
Then tell me to submit this report, my revised work, and the share link.
COPY EVERYTHING ABOVE THIS LINE

Deliverables

Submit these three items in the assignment entry:

• your revised work with all four results, their brief interpretations, the three statements, the four closing entries, and your message to the founder — written, or recorded as audio or video 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;
• the coach's five-line report; and
• the conversation share link.

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.

Equivalent route (no AI required)

This route assesses the same Week 5 skills — preparing the bicycle shop's income statement, statement of retained earnings, and classified balance sheet in order, journalizing the four closing entries through Income Summary, proving the post-closing trial balance, and explaining net income, dividends, and closing in plain words — for comparable time and effort, about 60 to 90 minutes, the same as the coached route. Complete the same four problems, the four brief interpretations, the three statements, the four closing entries, and the message to the founder. Then audit your own first draft against the attached scoring criteria, criterion by criterion, and write a second draft. Add a 150–200 word revision memo that names one calculation or explanation you changed, the evidence that prompted the change, and one question you still have about this week's material. Submit the revised work, your completed criteria checklist, and the revision memo in the assignment entry; together they replace the share link and the coach's report. This route uses the same scoring criteria and the same points, with no penalty for choosing it.

How you'll be graded

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

Academic integrity and AI use

The calculations, statements, entries, reasoning, revision, and final report must be your own. Do not ask the chatbot to create the assignment or add evidence you did not produce, and do not let it list the dividend as an expense, close Dividends to Income Summary, or call the shop's Cash its net income. Submit an honest share link from your own dialogue. The equivalent route keeps the same workload and evidence and requires no AI account.

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