Given The Following Adjusted Trial Balance: After Closing Entries Have Been Posted The Balance In Retained Earnings Will Be:

Given The Following Adjusted Trial Balance: Debit Balances Cash $ 831 Accounts receivable $1,049 Inventory $1,562 Prepaid rent $43 Equipment $150 Salaries and wages expense $80 Travel expense $33 Total = $3,748 Credit Balances Accumulated depreciation-equipment $26 Accounts payable $41 Unearned service revenue $61 Common stock $103 Retained earnings $3,305 Service revenue $184 Commission revenue $28 Total = $3,748 After Closing Entries Have Been Posted The Balance In Retained Earnings Will Be: A) $3,306. B) $3,220. C) $3,490. D) $3,404.
The correct option of this multiple choice question (mcq) is "D" as proved below:

Firstly, here we need to calculate Net Income, which is transferred to Retained Earnings Account (REA), and then the balance of REA after the posting of closing journal entries.

We are given the following relevant information from the adjusted trial balance of a company / corporation:

Service Revenue = $184

Commission Revenue = $28

Salaries And Wages Expense = $80

Travel Expense = $33

Opening Retained Earnings Or Retained Earnings Before Adjustments or before posting closing entries = $3,305

In closing entries, all the temporary accounts (revenue and expense accounts) are, finally, closed to Income Summary Account, which affects the REA also.

All other accounts, which are shown in this adjusted trial balances are assets (cash, accounts receivable, inventory, prepaid rent and equipment), liabilities (accounts payable and unearned service revenue), equity account (retained earnings and common stock) and contra asset  account (accumulated depreciation-equipment). Assets are shown at first, then liabilities and then equity account. After that, revenues are shown. At last, expense accounts are given.

Required:

Net Income = ?

Retained Earnings Adjusted Balance = ?

We Know the following formula of net income which is shown below:

Net Income = Total Revenues - Total Expenses

Net Income = (Service Revenue + Commission Revenue) - (Salaries And Wages Expense + Travel Expense)

Net Income = ($184 + $28) - ($80 + $33) = $212 - $113 = $99

Now, to calculate the balance of retained earnings after posting closing entries, we know that:

Ending Retained Earnings = Opening RE + Net Income - Dividend

As dividend is not declared and it is not distributed to shareholders / stockholders, so it its balance is zero here, so we have:

Ending RE = $3,305 + $99 - 0 = $3,404

So, the balance in RE after adjustments or posting closing entries is $3,404 and therefore options A, B and C of this multiple choice question are incorrect choices here.

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