Question

In the closing process, total revenues are determined to be $4,750 while total expenses are determined to be $3,875 and total dividends are $1,150. The retained earnings account will:

A) increase by $875 due to net income.
B) increase by $275 due to net income.
C) decrease by $875 due to net income.
D) decrease by $275 due to net income.

Answer 1

The retained earnings account will decrease by $275 due to net income option (d), after accounting for the dividends paid. Total revenues of $4,750 minus total expenses of $3,875 results in a net income of $875. After deducting dividends of $1,150, the retained earnings decrease by $275.

Step-by-step explanation:

The student has asked about the impact of revenues, expenses, and dividends on retained earnings during the closing process. To find the change in retained earnings, one needs to calculate the net income and then adjust it by the amount of dividends paid. Net income is calculated by subtracting total expenses from total revenues.

Here's the calculation based on the provided figures:

• Total Revenues: $4,750
• Total Expenses: $3,875
• Dividends: $1,150
• Net Income: $4,750 - $3,875 = $875 (increase in retained earnings)
• Retained Earnings after Dividends: $875 - $1,150 = -$275 (a decrease in retained earnings)

Therefore, the retained earnings account will decrease by $275 due to net income after accounting for dividends paid out.