Question

Big-Mouth Frog Corporation had revenues of $300,000, expenses of $180,000, and dividends of $45,000. When the Income Summary is closed to Retained Earnings, what is the debit or credit to Retained Earnings?

A. Debit of $75,000
B. Debit of $120,000
C. Credit of $75,000
D. Credit of $120,000

Answer 1

When the Income Summary is closed to Retained Earnings, the credit to Retained Earnings is $75,000.

Step-by-step explanation:

In this case, when the Income Summary is closed to Retained Earnings, we need to consider the revenues, expenses, and dividends. Revenues increase Retained Earnings, expenses decrease Retained Earnings, and dividends decrease Retained Earnings.

Given that Big-Mouth Frog Corporation had revenues of $300,000, expenses of $180,000, and dividends of $45,000, we can calculate the net income as follows:

1. Net Income = Revenues - Expenses = $300,000 - $180,000 = $120,000
2. Net Income - Dividends = $120,000 - $45,000 = $75,000

Since the net income is positive, the closing entry to Retained Earnings will be a credit of $75,000.