Question

A summary of selected transactions in ledger accounts appears below for Alberto’s Plumbing Services for the current calendar year-end.

Common Stock

		1/1	6,819

Retained Earnings

12/31	7,881	12/31	23,998

Dividends

3/30	2,489	12/31	7,881
9/30	5,392

Net income for the period is

a.38,698

b.30,817

c.23,998

d.7,881

Answer 1

Option c. 23998

Explanation

1) Retained earnings is the amount of net income left over for the business after it has paid out dividends to its shareholders

2) Dividend are the liabilty of organisation against there stockholder , and dividend are declared and paid out of retained earning .

Entry of dividend payment on 30 March and 30 Sept (2489+5392)=$7881

Dividend Dr....$7881

To Cash ............$7881

( Being dividend paid )

And at the closing date adjusment entry to close this temporary account is passed by Crediting dividend to retained earninngs

12/31 .... Retained Earnings Debit .... Dr $7891

...................To Dividend ........................Cr $7891

As the Debit side is reflecting closing entry of dividend on 31 dec in Earnings .

3) For closing income summary account we transfer income to retained earning by passing adjustment entry . As retained earnings debit side is reflilecting dividend the other entry to the retained earning will be of Net Income

Closing Adj entry at the end of year

Income Summary Dr....$23998

.........To Retained Earning Cr $23998

( Being Net income tranfered to Retained earning )

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