Question

Big-Mouth Frog Corporation had revenues of $330,000, expenses of $200,000, and dividends of $45,000. When Income Summary is closed to Retained Earnings, the amount of the debit or credit to Retained Earnings is a

a. debit of $85,000.
b. debit of $130,000.
c. credit of $85,000.
d. credit of $130,000.

Answer 1

The Big-Mouth Frog Corporation will credit Retained Earnings with $85,000, which is the net income of $130,000 minus the dividends of $45,000.

Step-by-step explanation:

The question from the student involves calculating the change in Retained Earnings after closing Income Summary in the accounting records of the Big-Mouth Frog Corporation. The corporation had revenues of $330,000, expenses of $200,000, and dividends of $45,000. To find the amount that needs to be debited or credited to Retained Earnings, we need to calculate the net income first, which is revenues minus expenses. So, the net income will be $330,000 - $200,000 = $130,000. When closing the Income Summary, this net income is added to Retained Earnings, but then dividends are subtracted. Therefore, the closing entry to Retained Earnings will be a credit of the net income ($130,000) minus the dividends paid ($45,000), which equals a credit of $85,000 ($130,000 - $45,000). Hence, the correct answer is: c. credit of $85,000.