Question

​Martinville, Inc. earned revenues of $ 17,000 and incurred expenses of $ 7,000. The company declared and paid cash dividends of $ 2,500. What is the balance in the Income Summary account prior to closing net income or loss to the Retained Earnings​ account?

Answer 1

$10,000

Step-by-step explanation:

A company's income is either shared out as dividends or kept in as retained earnings. Therefore, the total of retained earnings and dividend paid out is the net income. This is the amount that will reflect in the income statement. In other words, income is calculated first before dividends or retained earnings are declared.

For ​Martinville, income will be calculated first before dividends are paid. Net income will be

=revenue - expenses

=$17,000 -$7,000

=$10,000

Balance in the Income Summary account was $10,000