Question

Finley Company End-of-Period Spreadsheet For the Year Ended December 31 Adjusted Trial Income Balance Statement Debit Credit Debit Credit 48,000 Balance Sheet Debit Credit 48,000 18,000 18,000 6,000 57,000 6,000 57,000 Account Title Cash Accounts Receivable Supplies Equipment Accumulated Depr. Accounts Payable Wages Payable Common Stock Retained Earnings Dividends Fees Earned Wages Expense Rent Expense Depreciation Expense Totals Net Income (Loss) 18,000 25,000 6,000 30,000 3,000 18,000 25,000 6,000 30,000 3,000 3,000 3,000 155,000 155,000 63,000 27,000 63,000 27,000 15,000 15,000 237,000 237,000 105,000 155,000 132,000 82,000 50,000 50,000 155,000 155,000 132,000 132,000 The effect of closing revenues and expenses to Retained Earnings will be to: ea, decrease Retained Earnings by $50,000 ob. increase Retained Earnings by $50,000 oc, decrease Retained Earnings by $237,000 od. increase Retained Earnings by $237,000

Answer 1

Ans. Option B

Explanation: When closing entries are prepared, the first step is to close total revenues account and the second is to close total expenses account.

The difference between revenues and expenses are known as net income (or loss). The net income of $50,000 (as given) will be transferred to retained earnings account. So, retained earnings will increase by the amount of net income ($50,000).