Question

All revenue and expense accounts have been closed at the end of the calendar year for Wang Company. The income summary account has total debits of $490,000 and total credits of $720,000. As of the same date, Retained Earnings has a balance of $175,000 and the Dividends account has a balance of $32,000. What is the new balance of Retained Earnings?

Answer 1

The new balance of Retained Earnings is $373,000.

Step-by-step explanation:

The new balance of Retained Earnings can be calculated by subtracting the total credits of the Income Summary account from the total debits. In this case, the total debits are $490,000 and the total credits are $720,000. Therefore, the difference is $720,000 - $490,000 = $230,000.

Next, we need to adjust the Retained Earnings balance for the Dividends account. The Dividends account has a balance of $32,000, which needs to be subtracted from the Retained Earnings balance. So, $175,000 - $32,000 = $143,000.

Finally, we add the difference from the Income Summary account to the adjusted Retained Earnings balance: $143,000 + $230,000 = $373,000. Therefore, the new balance of Retained Earnings is $373,000.