S & X Co. is a retail store owned solely by Paul Turner. During the month of November, the equity accounts were affected by the following events: Nov. 9 Turner invested an additional $15,000 in the business. Nov. 15 Turner withdrew $1,500 for his salary for the first two weeks of the month. Nov. 30 Turner withdrew $1,500 for his salary for the second two weeks of the month. Nov. 30 S & X distributed $1,000 of earnings to Turner. a. Assuming that the business is organized as a sole proprietorship: 1. Prepare the journal entries to record the above events in the accounts of S & X. 2. Prepare the closing entries for the month of November. Assume that after closing all of the revenue and expense accounts the Income Summary account has a balance of $5,000.
Hint: Record the investment in a separate capital account and the withdrawals (salary) in a separate drawing account. Close the drawing account into the capital account as part of the closing entries. b. Assuming that the business is organized as a corporation: 1. Prepare the journal entries to record the above events in the accounts of S & X. Assume that the distribution of earnings on November 30 was payment of a dividend that was declared on November 20. 2. Prepare the closing entries for the month of November. Assume that after closing all of the revenue and expense accounts (except Income Tax Expense) the Income Summary account has a balance of $2,000. Before preparing the closing entries, prepare the entries to accrue income tax expense for the month and to close the Income Tax Expense account to the Income Summary account. Assume that the corporate income tax rate is 30 percent. c. Explain the causes of the differences in net income between S & X as a sole proprietorship and S & X as a corporation. d. Describe the effects of the business operations on Turner's individual income tax return, assuming that the business is organized as ( 1 ) a sole proprietorship and ( 2 ) a corporation