This case uses both the income statement (statement of operations) and the balance.It will help you understand the closing process of a business.
1. Journalize closing entries for the revenues and expenses of 2009. Show all amounts in millions as in the financial statements. You may be unfamiliar with certain revenues and expenses, but treat each item on the income statement as either a revenue or an expense. For example, Net sales is the first revenue item. Other items you may be unfamiliar with are as follows: “Other operating expense (income), net” is shown in parentheses, so it should be treated as revenue. “Interest Income” should be treated as revenue. Although the amount shown for “Interest expense” is in parentheses, you may ignore those parentheses for this purpose and treat it similar to other expenses. “Other income (expense), net” is shown as a positive number, so it should be treated as revenue. The “provision for income taxes” should be treated as an expense. “Equity method investment activity, net of tax” is shown in parentheses, so it should be shown as an expense. In your closing entries, ignore all subtotals such as Gross profit, Total operating expenses, Income from operations, Total non operating income (expense), and Net income (loss).
2. Create a T account for the Income summary, post to that account, and then close the Income summary. How much was closed to Retained earnings? How is the amount that was closed to Retained earnings labeled on the income statement?