Question

Rosewood, Inc. earned revenues of $19,000 and incurred expenses of $4,000. The company declared and paid cash dividends of $1,500. What is the balance in the Income Summary account after closing net income or loss to the Retained Earnings account?
a. credit balance of $4,000.
b. balance of $0.
c. debit balance of $19,000.
d. credit balance of $15,000.
e. none of the above.

Answer 1

Answer:

Option D. Credit balance of $15,000

Explanation:

The retained earning balance is calculated using the following formulas:

Cl. Retained Earnings = Op. R.Earnings + (Sales - Expenses - Dividend paid)

Here we have to find the effect on the retained earnings which means the change in retained earnings, so the formula becomes:

Change in Retained Earnings for the year = Sales - Expenses - Dividend paid

By putting the values in the above formula, we have:

Change in Retained Earnings for the year = $19,000 - $4,000 - $1,500

Change in Retained Earnings for the year = Credit $15,000

Hence the option D is correct.