ACG ch. 4 practice quiz
On August 1, Long Corporation signed a $30,000, 14%, 2-year note to help finance renovations being made to the corporation headquarters. Assuming interest is accrued only when the year ends on December 31, the appropriate journal entry for the first year would be a $1,750 debit to Interest Expense and a $1,750 credit to Interest Payable. $4,200 debit to Interest Expense and a $4,200 credit to Interest Payable. $4,200 debit to Interest Expense and a $4,200 credit to Notes Payable. $1,750 debit to Interest Expense and a $1,750 credit to Notes Payable. No adjusting entry would be required.
$1,750 debit to Interest Expense and a $1,750 credit to Interest Payable. Solution: This entry correctly adjusts the accounts and interest incurred for a five month period. ($30,000 x 0.14 x 5/12 = $1,750) Chapter 4, Learning objective 5
A company borrows $15,000 at 8% interest for 3 months beginning on June 1. If adjusting entries are recorded on June 30, how much will be recorded for Interest Expense? $300 $100 $160 $900 $1,200
$100 Solution: Principal x Rate x Time = Interest $15,000 x 8% x (1/12) = $100 Interest rates are always annual interest rates unless specifically stated otherwise. This loan charges 8% annual interest per year. Chapter 4, Learning objective 5
The following is information is taken from Clark Corporation's financial records for the current fiscal year. i. Cash received from customers, $230,000 ii. Revenue earned, $255,000 iii. Cash paid for wages, $110,000 iv. Wage expense incurred, $115,000 v. Cash paid during the current year for computers that will be used for 3 years, $30,000 vi. Depreciation expense, $10,000 vii. Proceeds from issuing debt, $30,000 viii. Interest incurred on debt, $3,000 ix. Cash paid for supplies, $4,000 x. Supplies expense incurred, $2,000 What is the company's net income for the current year using the accrual basis of accounting? Selected Answer: Correct Answers: $135,000 Correct $125,000 $115,000 $186,000 $130,000
$125,000 Solution: Net income using the accrual basis = Revenue earned - expenses incurred including prepaids Net income using the accrual basis = $255,000 - 115,000 - 10,000 - 3,000 - 2,000 = $125,000 Chapter 4, Learning objective 2, Pool 3
Employees at the Waco Waffle House were paid on Friday, December 26 for the five days ending on December 27. The next payday is Friday, January 2. Employees work 5 days a week. The weekly payroll amounts to $3,600. The appropriate adjusting journal entry on December 31 would be to credit Salaries and Wages Payable for $2,160. $720. $1,440. $3,600. $1,520.
$2,160. Employees work on December 29-31, but they will not be paid until January 2. At the end of December 31, the company owes employees for three days of the five day work week (i.e., $3,600 x 3/5 = $2,160). Chapter 4, Learning objective 5
A company borrows $18,000 at 9% interest for 3 months beginning on May 1. If adjusting entries are recorded on June 30, how much will be recorded for Interest Expense? - $100 - $1,620 - $135 - $270 - $1,500
$270 Solution: Principal x Rate x Time = Interest $18,000 x 9% x (2/12) = $270 Interest rates are always annual interest rates unless specifically stated otherwise. This loan charges 8% annual interest per year. Chapter 4, Learning objective 5
The following is information is taken from Clarke Corporation's financial records for the current fiscal year. i. Cash received from customers, $150,000 ii. Revenue earned, $195,000 iii. Cash paid for wages, $85,000 iv. Wage expense incurred, $90,000 v. Cash paid during the current year for computers that will be used for 3 years, $24,000 vi. Depreciation expense, $8,000 vii. Proceeds from issuing debt, $50,000 viii. Interest incurred on debt, $5,000 ix. Cash paid for supplies, $3,000 x. Supplies expense incurred, $2,000 What is the company's net income for the current year using the cash-basis of accounting? - $98,000 - $38,000 - $99,000 - $90,000 - $41,000
$38,000 Solution: Net income using the cash-basis = Cash collected from customers - cash paid for expenses incurred including prepaid expenses Net income using the cash-basis = $150,000 - 85,000 - 24,000 - 3,000 = $38,000 Chapter 4, Learning objective 2, Pool 4
Crowley Company has the following adjusted trial balance: Debit Credit Cash 1,500 Accounts receivable 2,100 Prepaid rent 100 Equipment 3,500 Accumulated depreciation-Equipment 1,500 Accounts payable 150 Unearned service revenue 200 Common stock 1,000 Retained earnings 4,700 Service revenue 800 Interest revenue 100 Salaries and wages expense 150 Depreciation expense 600 Rent expense 500 Total 8,450 8,450 After closing entries have been journalized and posted, the balance in the company's retained earnings account will be $5,050. $8,450. $4,350. $4,700. $4,550.
$4,350. Solution: Ending retained earnings = Beginning retained earnings + revenues - expenses - dividends Ending retained earnings = 4,700 + 800 + 100 - 150 - 600 - 500 = 4,350 Chapter 4, Learning objective 7
Intuitive Design Company started business this year and it purchased $6,000 of office supplies and debited Supplies for the full cost. Supplies on hand at the end of the accounting period were $1,500. The company's appropriate adjusting journal entry to be made would be a $4,500 debit to Supplies Expense and a $4,500 credit to Supplies. $1,500 debit to Supplies and a $1,500 credit to Supplies Expense. $4,500 debit to Supplies and a $4,500 credit to Supplies Expense. No adjusting entry is necessary. $1,500 debit to Supplies Expense and a $1,500 credit to Supplies.
$4,500 debit to Supplies Expense and a $4,500 credit to Supplies. Solution: Learning objective 4 Supplies expense can be computed as beginning supplies plus the cost of supplies purchased in the current period minus the cost of supplies on hand at the end of the period. Since this company started business this year (and no beginning supplies were mentioned), beginning supplies should be determined to be zero. Thus, supplies expense = $0 + $6,000 - $1,500 = $4,500. The year-end adjusting journal entry to record Supplies Expense (and to decrease Supplies to the correct ending balance) would be a debit to Supplies Expense for $4,500 and a credit to Supplies for $4,500.
On September 1 the Petite-Sizes Store paid $15,000 to the Mega-Mall Co. for 3 months' rent beginning September 1. Prepaid Rent was debited for the payment. If Petite-Sizes Store prepares financial statements on September 30, the appropriate adjusting journal entry to make on September 30 would be a No adjusting entry is necessary. $10,000 debit to Prepaid Rent and a $10,000 credit to Rent Expense. $5,000 debit to Rent Expense and a $5,000 credit to Prepaid Rent. $5,000 debit to Prepaid Rent and a $5,000 credit to Rent Expense. $10,000 debit to Rent Expense and a $10,000 credit to Prepaid Rent.
$5,000 debit to Rent Expense and a $5,000 credit to Prepaid Rent. Solution: Learning objective 4 The company should record rent expense for the month of September. Since the cost of three months' of rent totals $15,000, the company's monthly rent expense is $5,000 (i.e., one-third of the three month cost). The month-end adjusting journal entry to record rent expense (and to decrease prepaid rent to its correct ending balance) would be a debit to Rent Expense for $5,000 and a credit to Prepaid Rent for $5,000.
On May 1, Mesa Verde, Inc. purchased a 2-year insurance policy for $15,600. Prepaid Insurance was debited for the entire amount. On December 31, when the annual financial statements are prepared, the appropriate adjusting journal entry would be a - No adjusting entry is necessary. - $10,400 debit to Insurance Expense and a $10,400 credit to Prepaid Insurance. - $10,400 debit to Prepaid Insurance and a $10,400 credit to Insurance Expense. - $5,200 debit to Prepaid Insurance and a $5,200 credit to Insurance Expense. - $5,200 debit to Insurance Expense and a $5,200 credit to Prepaid Insurance.
$5,200 debit to Insurance Expense and a $5,200 credit to Prepaid Insurance. Solution: Learning objective 4 This entry correctly adjusts the accounts to recognize that six months of the 36 month policy have expired and are recorded as expense. Monthly rate = $15,600/24 = $650 per month. Expense the amount for May. 1 through Dec. 31: $650 x 8 = $5,200
Crowley Company has the following adjusted trial balance: Debit Credit Cash 1,500 Accounts receivable 2,100 Prepaid rent 100 Equipment 3,500 Accumulated depreciation-Equipment 1,500 Accounts payable 150 Unearned service revenue 200 Common stock 1,000 Retained earnings 4,700 Service revenue 800 Interest revenue 100 Salaries and wages expense 150 Depreciation expense 600 Rent expense 500 Total 8,450 8,450 After closing entries have been journalized and posted, the post-closing trial balance total for the credit column will be $7,200. $8,100. $8,450. $4,350. $9,700.
$7,200. Solution: Total credits in the post-closing trial balance = the total credits of the adjusted trial balance + expenses and dividends (if any). Total credits in the post-closing trial balance = 8,450 - 150 - 600 - 500 = 7,200 Chapter 4, Learning objective 7
Bonita Realty Management Co. received a check for $30,000 on October 1, which represents a one year advance payment of rent on an office it rents to a client. Unearned Rent Revenue was credited for the full $30,000. Financial statements are prepared on December 31. The appropriate adjusting journal entry to make on December 31 of the first year would be a - $2,500 debit to Rent Revenue and a $2,500 credit to Unearned Rent Revenue. - $7,500 debit to Unearned Rent Revenue and a $7,500 credit to Rent Revenue. - $22,500 debit to Unearned Rent Revenue and a $22,500 -credit to Rent Revenue. - $2,500 debit to Rent Revenue and a $2,500 credit to Unearned Rent Revenue. - No adjusting entry is necessary.
$7,500 debit to Unearned Rent Revenue and a $7,500 credit to Rent Revenue. Solution: The year-end adjusting entry reduces the liability (i.e., Unearned Revenue) and increases Revenue for the amount of revenue earned during this accounting period. Revenue earned Oct. through Dec. = 30,000 x 3/12 = 7,500. Chapter 4, Learning objective 4
FastAct Company pays its employees their wages each Friday. The most recent payment occurred on Friday, December 26. The next payroll will be paid on January 2. There are three more work days in December after December 26th. Employees work 5 days a week and the company pays $30,000 per week in wages. What will be the adjusting entry to accrue wages expense at the end of December? A credit to Salaries and Wages Expense for $6,000 No adjusting entry would be required. A debit to Salaries and Wages Expense for $18,000 A credit to Salaries and Wages Expense for $18,000 A debit to Salaries and Wages Expense for $6,000
A debit to Salaries and Wages Expense for $18,000 Solution: Learning objective 5 Three days' wages need to be recorded for the current year even though the employer will not pay its employees for those days until Jan. 2 of next year. Three days' wages = $30,000 x 3/5 = $18,000. Expenses increase with debits.
Mike works for a company that pays employees' wages and salaries on a monthly basis. The company's accountant failed to accrue the salary owed to Mike's at the end of the current year. Which of the following are impacts on the company's year-end financial statements as a result of the accountant's error? Expenses are understated and net income is overstated. Liabilities are overstated and retained earnings is overstated. Liabilities are understated and assets are overstated. Expenses are overstated and retained earnings is understated. Revenues are overstated and net income is understated.
Expenses are understated and net income is overstated. Solution: The adjusting entry to record salaries owed at year-end would include a debit to the Salaries and Wages Expense account and a credit to the Salaries and Wages Payable account. This adjusting entry would increase salaries expense. This adjusting entry (if recorded) increases the company's expenses which decreases its net income, and decreasing net income decreases retained earnings (and stockholders' equity). This adjusting entry also increases a payable account which is a liability so it increases liabilities. This questions asks for the effect of omitting (or forgetting) this adjusting entry. Omitting the adjusting entry to record salaries causes several errors, including understating expenses, overstating net income, overstating retained earnings, overstating staokcholders' equity, and understating liabilities. Chapter 4, Learning objective 5, Pool 7
Companies prepare various types of trial balances. Which trial balance lists all of a company's permanent accounts but not its temporary accounts? The adjusted trial balance The post-closing trial balance The trial balance prepared before recording adjusting entries The pre-disclosure trial balance All of these list the same number of accounts.
The post-closing trial balance Solution: Companies prepare three trial balances: (i) trial balance (i.e., before recording adjusting entries), (ii) the adjusted trial balance (i.e., which is prepared after recording adjusting entries), and (iii) the post-closing trial balance (i.e., which is prepared after recording closing entries). The adjusted trial balance shows the balances of all accounts, including those adjusted at the end of the accounting period. The post-closing trial balance lists only permanent accounts (i.e., balance sheet accounts) because the temporary accounts (e.g., income statement accounts) will have been closed to zero in preparation for the next year. There is no "pre-disclosure trial balance." Chapter 4, Learning objective 7
Which of the following is not a typical example of a prepaid expense? All of these are examples of prepaids Supplies Correct Wages Insurance Rent
Wages Solution: Learning objective 4 Wages are seldom prepaid since employees may not fulfill their obligations if they receive their wages before doing their work. Supplies is one of the typical prepaid expenses. Insurance usually requires prepayment for protection. Because of this, it is a typical example of prepaid expenses. Rent is usually paid at the beginning of the period. Because of this it is a typical prepaid expense.
The following information is from the Income Statement of the Dirt Poor Laundry Service: Revenues Service Revenue $5,500 Expenses Salaries and wages expense $ 1,950 Advertising expense 500 Rent expense 300 Supplies expense 200 Insurance expense 100 Total expenses 3,050 Net Income $2,450 The closing entries include a: - debit to Retained Earnings for $5,500. - debit to Income Summary for $5,500. - debit to Service Revenue for $5,500. - credit to Service Revenue for $5,500. - debit to Cash for $3,050.
debit to Service Revenue for $5,500. Solution: Closing entries close revenue accounts and expense accounts to an account called "income summary" and then closes the income summary account to the retained earnings account. Also, the dividends account is also closed, but it is closed directly to retained earnings. First, close the revenue accounts: Debit: Service Revenue for $5,500 Credit: Income Summary for $5,500 Second, close the expense accounts: Debit: Income Summary for $3,050 Credit: Salaries and Wages Expense for $1,950 Credit: Advertising Expense for $500 Credit: Rent Expense for $300 Credit: Supplies Expense for $200 Credit: Insurance Expense for $100 Third, close the Income Summary account: Debit: Income Summary for $2,450 Credit: Retained Earnings for $2,450 There is no dividends account balance to be closed. Chapter 4, Learning objective 7
In the closing process total revenues are determined to be $4,350 while total expenses are determined to be $3,575 and total dividends are $650. The retained earnings account will -increase by $125. -increase by $775. -decrease by $775. -Retained earnings does not change. -decrease by $125.
increase by $125. Solution: Retained earnings will increase by revenues of $4,350, decrease by expenses of $3,575 and decrease by dividends or $650; retained earnings increases by $125. Chapter 4, Learning objective 7
Payments from customers received before performing services for the customers are recorded as liabilities. dividends. revenues. equity. expenses.
liabilities. Solution: Learning objective 4 Cash received before services are performed should be recorded as a liability because it represents a future obligation for the organization. Revenues are recorded when the performance obligation is satisfied, not when cash is received. Equity represents ownership of the company. Cash received before services are performed is a liability. Expenses are the cost of obtaining goods and services for the organization. Cash received before services are performed is a liability.
During the adjusting process two transactions were neglected or omitted. The first is for unearned rent revenue of which $415 was earned during the period, the second was for accrued interest payable of which $275 is owed for the period. As a result of these omissions - revenue is overstated by $690. - These omissions would not affect the financial statements; - the financial statements will be correct. - liabilities are overstated by 690 - net income is understated by $140. - assets are overstated by $415.
net income is understated by $140. The omission associated with unearned rent revenues increases net income by $690 while the omission of accrued expenses, interest expense and interest payable, increases expenses and liabilities by $275. As a result, revenues are understated by $690 while expenses are understated by $275 so net income is understated by $140. Assets are not affected by these errors but liabilities are overstated by $140. Chapter 4, Learning objective 5
In Year 1, Costello Company performed work for a customer and billed the customer $12,000. In Year 1, Costello Company also incurred and paid wage expenses of $4,000. In Year 2, the customer pays for the services it received from Costello Company in Year 1. If Costello uses the accrual-basis of accounting, then Costello will report revenue of $12,000 in Year 1 and expense of $4,000 in Year 2. revenue of $12,000 in Year 2 and expense of $4,000 in Year 2. revenue of $12,000 and expense of $4,000 in Year 1. no revenue and no expenses in either year. revenue of $12,000 in Year 2 and expense of $4,000 in Year 1.
revenue of $12,000 and expense of $4,000 in Year 1. Solution: Learning objective 2 The accrual-basis of accounting records revenues when the performance obligation is satisfied and expenses when incurred. The services were performed in Year 1 so the company should recognize the revenue in Year 1 even though the customer did not pay the company until Year 2. The expenses were incurred in Year 1 so the company should recognized the expense in Year 1 regardless of when the company paid the expenses.
On August 1 the Darius Co. purchased a photocopy machine for $12,000. The estimated annual depreciation on the machine is $2,040. If the company prepares annual financial statements on December 31, the appropriate adjusting journal entry to make on December 31 of the first year would be a No adjusting entry is necessary. $170 debit to Depreciation Expense and a $170 credit to Accumulated Depreciation. $850 debit to Depreciation Expense and a $850 credit to Accumulated Depreciation. $2,040 debit to Depreciation Expense and a $2,040 credit to Accumulated Depreciation. $1,190 debit to Depreciation Expense and a $1,190 credit to Equipment
$850 debit to Depreciation Expense and a $850 credit to Accumulated Depreciation. The correct adjusting records depreciation expense and accumulated depreciation for the 5 months between August 1 and December 31 (i.e., $2,040 per year x 5/12 = $850). Chapter 4, Learning objective 4
FastAct Company pays its employees their wages each Friday. The most recent payment occurred on Friday, December 26. The next payroll will be paid on January 2. There are three more work days in December after December 26th. Employees work 5 days a week and the company pays $30,000 per week in wages. What will be the adjusting entry to accrue wages expense at the end of December? - A debit to Salaries and Wages Expense for $6,000 - A debit to Salaries and Wages Expense for $18,000 - A credit to Salaries and Wages Expense for $18,000 - A credit to Salaries and Wages Expense for $6,000 - No adjusting entry would be required.
A debit to Salaries and Wages Expense for $18,000 Solution: Learning objective 5 Three days' wages need to be recorded for the current year even though the employer will not pay its employees for those days until Jan. 2 of next year. Three days' wages = $30,000 x 3/5 = $18,000. Expenses increase with debits.
Which one of the following is not a justification for adjusting entries? Adjusting entries are necessary to ensure that the revenue recognition principle is followed. All of these are proper justification for adjusting entries. Adjusting entries are necessary to ensure that the expense recognition principle is followed. Adjusting entries are necessary to bring the general ledger accounts in line with the budget. Adjusting entries are necessary to enable financial statements to be in conformity with GAAP.
Adjusting entries are necessary to bring the general ledger accounts in line with the budget. Solution: Learning objective 3 Adjusting entries are not made to comply with budgetary values.
Which of the following is correct concerning the adjusted trial balance? - None of these statements are correct. - The adjusted trial balance provides the primary basis for the preparation of financial statements. - All of these statements are correct. - The company prepares the adjusted trial balance after it has journalized and posted the adjusting entries. - An adjusted trial balance proves the equality of the total debit balances and the total credit balances in the ledger after all adjustments are made.
All of these statements are correct. An adjusted trial balance proves the equality of the total debit balances and the total credit balances in the ledger after all adjustments are made. The adjusted trial balance provides the primary basis for the preparation of financial statements. The company prepares the adjusted trial balance after it has journalized and posted the adjusting entries. Chapter 4, Learning objective 6
If revenues are recognized only when a customer pays, what method of accounting is being used? Accrual-basis Recognition basis Cash-basis Matching basis Periodicity
Cash-basis Solution: Learning objective 2 Under the cash-basis of accounting, revenues are recognized when cash is received rather than when the performance obligation is satisfied. It is the accrual-basis of accounting that recognizes revenue when a performance obligation is satisfied. If an organization recognizes the revenue when the customer pays, the organization is using the cash-basis of accounting.
Which principle dictates that efforts (i.e., expenses) be matched with results (i.e., revenues)? Revenue recognition principle Historical cost principle Periodicity principle Monetary unit assumption Expense recognition principle
Expense recognition principle Solution: Learning objective 1 The expense recognition principle requires that expenses be matched to revenues; expenses are recognized in the period when they helped generate revenues. The historical cost principle states that when assets are purchased, they should be recorded at cost, not that efforts be matched with results. The periodicity assumption states that the life of a business can be divided into artificial time periods, not that efforts be matched with results. The revenue recognition principle states that revenue should be recorded in the period in which the performance obligation is satisfied, not that efforts be matched with results.
Sam works for a sports franchise which pays wages and salaries earned on a monthly basis. A new accountant was hired by the sports franchise in late May. Due to inexperience, the new accountant failed to accrue Sam's salary for May. What is the impact on the May 31 financial statements of the sports franchise? Revenues are overstated; net income is understated. Not recording such a journal entry would not affect the financial statements; the financial statements will be correct. Liabilities are understated; assets are overstated. Liabilities are overstated; retained earnings is overstated. Expenses are understated; net income is overstated.
Expenses are understated; net income is overstated. Solution: The failure to accrue salaries and wages expense and a liability for salaries and wages payable results in understating expenses and liabilities and overstating net income and retained earnings; there is no impact on assets. Chapter 4, Learning objective 5
Although steps are missing, which of the following lists steps of the accounting cycle in their correct order? Post the closing entries, prepare an adjusted trial balance, prepare the financial statements, Prepare the financial statements,prepare a trial balance, post the closing entries. Journalize the transactions, journalize the adjusting entries, prepare a post-closing trial balance. Post the transactions, prepare a post-closing trial balance, journalize and post adjusting entries. Post the transactions, post the closing entries, prepare a trial balance.
Journalize the transactions, journalize the adjusting entries, prepare a post-closing trial balance. Solution: The correct order is (i) analyze transactions, (ii) journalize transactions, (iii) post to the ledger, (iv) prepare a trial balance, (v) journalize and post the adjusting entries, (vi) prepare an adjusted trial balance, (vii) prepare financial statements, (viii) journalize & post closing entries, (ix) prepare a post-closing trial balance. Chapter 4, Learning objective 8
Which types of accounts will appear in the post-closing trial balance? Permanent accounts Temporary accounts None of these answer choices are correct. Accounts shown in the income statement All accounts will appear in the post-closing trial balance.
Permanent accounts Solution: Permanent accounts, not temporary accounts, are the only type of accounts that will appear in the post-closing trial balance because they are not closed at the end of the accounting period. Permanent accounts (sometimes called real accounts) are the accounts reported on the balance sheet. Their end of year balances become next year's beginning balances. Chapter 4, Learning objective 7
A company's closing entries can be describes as follows: The first closing entry closes revenues and credits the Income Summary account for $12,125. The second closing entry closes expenses and debits the Income Summary account for $5,775. The third closing entry closes the Income Summary account. Prior to the fourth closing entry, the Dividends account has a $1,325 balance. The fourth closing entry closes the Dividends account. What was the company's net change in Retained Earnings for the current period? What was the company's net change in Retained Earnings for the current period? - Retained Earnings increased by $5,775 during this period. - Retained Earnings decreased by $5,775 during this period. - Retained Earnings increased by $5,025 during this period. - Retained earnings does not change during this period. - Retained Earnings decreased by $5,025 during this period.
Retained Earnings increased by $5,025 during this period. Solution: Retained Earnings is increased by revenues, $12,125, and decreased by expenses and dividends, $5,775 and $1,325, so the increase in Retained Earnings is $5,025. Chapter 4, Learning objective 7
Companies prepare various types of trial balances. Which trial balance likely lists the largest number of accounts for a given company? The pre-disclosure trial balance The post-closing trial balance The trial balance prepared before recording adjusting entries All of these list the same number of accounts. The adjusted trial balance
The adjusted trial balance Companies prepare three trial balances: (i) trial balance (i.e., before recording adjusting entries), (ii) the adjusted trial balance (i.e., which is prepared after recording adjusting entries), and (iii) the post-closing trial balance (i.e., which is prepared after recording closing entries). The adjusted trial balance shows the balances of all accounts, including those adjusted at the end of the accounting period. The post-closing trial balance lists only permanent accounts (i.e., balance sheet accounts) because the temporary accounts (e.g., income statement accounts) will have been closed to zero in preparation for the next year. The trial balance prepared before recording adjusting entries likely lists most of a company's accounts but a few do not yet have balances (e.g., depreciation expense) and will not be listed. There is no "pre-disclosure trial balance." Chapter 4, Learning objective 7
With the adjusted trial balance in hand you see that the debit totals of the real accounts is $19,250 and the credit totals of the real accounts is $15,250. The debit total of the nominal or temporary accounts is $2,275 while the credit total of the nominal or temporary accounts is $7,275. From this you know that All of these are true. net income is $5,000 for the fiscal period. there is an error in the adjusted trial balance. net loss is $5,000 for the fiscal period. retained earnings will increase by $5,000 through the closing process.
retained earnings will increase by $5,000 through the closing process. Temporary accounts include the accounts that are closed. These include revenues, expenses, and dividends. The excess of temporary account's credit balances (i.e., revenues) over temporary accounts' debit balances (i.e., expenses and dividends) represents the amount by which retained earnings increases in the current period. In this case, revenues of $7,275 exceeded expenses and dividends of $2,275 by $5,000. This company's retained earnings increased by $5,000 in the current year. Chapter 4, Learning objective 6
