Question

Multiple Choice Questions:

1. Some of what we've learned about Income Summary account is:

A) If we had a Net Loss, we will close Income Summary by debiting Income Summary and crediting Retained Earnings

B) The income summary account is a temporary account that we create to close revenue, expenses, and dividends with it

C) After closing revenue and expenses, the income summary account (before we close it) will have an ending balance that matches exactly the net income (or net loss if there was a loss)

D) When we record a journal entry to close Income summary, we will close the Retained Earnings as well in the same journal entry

2) In the financial statements, the relationship between income statement, retained earnings, and balance sheet is:

A) The more assets we add to the company always means more net income, which means more retained Earnings, which also means more Stockholder's Equity in the Balance Sheet

B) The more liabilities we have always means more expenses, which means less net income, less retained earnings, and less Stockholder's Equity in the Balance Sheet

C) The more expenses we have, the less we'll have in retained earnings, and the less Stockholder's Equity we'll have in the Balance Sheet

D) The more dividends we have, the less Retained Earnings, and the less Stockholder's Equity. Net income always does not affect Stockholder's Equity at all in any kind of transaction

Answer 1

Answers

1. Some of what we've learned about Income Summary account is:

Correct Answer = Option C) After closing revenue and expenses, the income summary account (before we close it) will have an ending balance that matches exactly the net income (or net loss if there was a loss)
Balance in Income Summary = Revenues – Expenses = Net Income or Net Loss

2) In the financial statements, the relationship between income statement, retained earnings, and balance sheet is:

Correct Answer = Option C) The more expenses we have, the less we'll have in retained earnings, and the less Stockholder's Equity we'll have in the Balance Sheet.
More expenses = Lower Net Income = Less addition to Retained earnings = Less Stockholder’s equity.