(Preparing closing entries using spreadsheets and journal entries, LO 2, 3, 6)

Below is Niagara Falls Ltd’s (Niagara Falls) summarized income statement for the year ended August 31, 2005.

a. Prepare a spreadsheet and make the entries that are necessary to close the temporary accounts.

b. Prepare the journal entry necessary to close the temporary accounts.

c. Explain why closing entries are necessary and when they should be recorded.

d. What would be the effect on net income in 2006 if Niagara Falls Ltd. forgot to prepare a closing entry?

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Niagara Falls Ltd. Income Statement for the Year Ended August 31, 2005 (in thousands of dollars) Sales $75,240 Cost of sales 25,400 Gross margin 49,840 Expenses Selling and marketing $7,580 General and administrative 5,150 Research and development 3,225 Amortization 3,140 Interest 1,500 Other 1,105 21,700 Income before taxes 28,140 Income taxes 10,130 Net income $18,010