The following balances were taken from the general ledger of Holland Company on January 1, 2012: During

Question:

The following balances were taken from the general ledger of Holland Company on January 1, 2012:

During 2012, the company completed the following transactions:
a. Purchased inventory for $95,000 on credit.
b. Issued an additional $40,000 of capital stock (4,000 shares) for cash.
c. Paid property taxes of $5,200 for the year 2012.
d. Paid advertising and other selling expenses of $6,500.
e. Paid utilities expense of $4,800 for 2012.
f. Paid the salaries and wages owed for 2011. Paid additional salaries and wages of $23,000 during 2012.
g. Sold merchandise costing $111,000 for $167,000. Of total sales, $38,000 were cash sales and $129,000 were credit sales.
h. Paid off notes of $15,500 plus interest of $1,200.
i. On November 1, 2012, received a loan of $15,000 from the bank.
j. On December 30, 2012, made annual mortgage payment of $3,300 and paid interest of $700.
k. Collected receivables for the year of $132,000.
l. Paid off accounts payable of $110,500.
m. Received dividends and interest of $1,100 on short-term investments during 2012. (Record as Miscellaneous Revenue.)
n. Purchased additional short-term investments of $12,000 during 2012. (Note: Short-term investments are current assets.)
o. Paid 2012 corporate income taxes of $6,300.
p. Paid cash dividends of $6,100.
Required:
1. Journalize the 2012 transactions. (Omit explanations.)
2. Set up T-accounts with the proper account balances at January 1, 2012, and post the journal entries to the T-accounts.
3. Determine the account balances, and prepare a trial balance at December 31, 2012.
4. Prepare an income statement and a balance sheet. (Remember that the dividends account and all revenue and expense accounts are temporary retained earnings accounts.)
5. Interpretive Question: Why are revenue and expense accounts used atall?