Question

High Step Shoes had annual revenues of $199,000, expenses of $110,700, and dividends of $23,600 during the current year. The retained earnings account before closing had a balance of $311,000. The entry to close the Income Summary account at the end of the year, after revenue and expense accounts have been closed, is:

a) $199,000
b) $311,000
c) $84,700
d) $65,700

Answer 1

The correct entry to close the Income Summary account, after accounting for annual revenues, expenses, and dividends, is $64,700.

Step-by-step explanation:

The student's question relates to the closing of the Income Summary account, which involves summarizing the year's revenues, expenses, and dividends to adjust the Retained Earnings. To find the entry to close the Income Summary account, we need to determine the company's net income first by subtracting its expenses from the revenues. High Step Shoes had annual revenues of $199,000 and expenses of $110,700, which results in a net income of $199,000 - $110,700 = $88,300. The Income Summary account is then closed to the Retained Earnings account. After closing the revenues and expenses, the balance of the Income Summary will be the net income of $88,300. However, we still need to account for the dividends, which are not an expense but a distribution of profits. Therefore the closing entry for the Income Summary account is $88,300 (net income) - $23,600 (dividends) = $64,700. Thus, the correct answer to close the Income Summary account including dividends is $64,700.