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5 May, 08:56

After all revenue and expense accounts have been closed at the end of the fiscal year, Income Summary has a debit of $2,450,000 and a credit of $3,000,000. At the same date, Retained Earnings has a credit balance of $8,222,600, and Dividends has a balance of $125,000.

A. Journalize the entries required to complete the closing of the accounts on December 31.

B. Determine the amount of Retained Earnings at the end of the period.

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  1. 5 May, 09:20
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    A. See explanation Section

    B. Ending Retained Earnings = $8,647,600

    Explanation:

    Requirement A

    As there is no information of revenues and expenses, we are giving only 2 closing journal entries.

    Debit balance of Income Summary = $2,450,000 (It comes after closing the expense accounts)

    Credit balance of Income Summary = $3,000,000 (It comes after closing the revenue accounts)

    Closing Entries

    December 31 Income Summary Debit $550,000

    Retained Earnings Credit $550,000

    (To close income summary to retained earnings) ($3,000,000 - $2,450,000) = $550,000

    December 31 Retained Earnings Debit $125,000

    Dividends Credit $125,000

    (To close the dividends accounts to retained earnings)

    Requirement B

    Statement of Retained Earnings

    For the year ended, December 31, 20Y2

    Balances, January 1, 20Y1 $8,222,600

    Add: Net Income $550,000 (Note: 1)

    $8,772,600

    Less: Dividends 125,000

    Balances, December 31, 20Y2 $8,647,600

    Note - 1: Income summary credit balance - Income summary debit balance = Net Income

    $3,000,000 - $2,450,000 = $550,000
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