Question

A company’s financial records report the following accounts and balances at the end of the year:

Accounts payable	$ 4,000
Accounts receivable	4,700
Cash	14,100
Common stock	5,600
Dividends	2,200
Interest expense	18,500
Notes payable	5,200
Prepaid insurance	2,700
Retained insurance	2,400
Service revenue	25,000

What would the company show as its total credits on its trial balance?

a) $39,800

b) $43,400

c) $36,600

d) $42,200

e) $44,400

Answer 1

Answer)

Trail Balance

Particulars	Debit	Credit
Accounts Payable		$4,000
Accounts receivable	$4,700
Cash	$14,100
Common Stock		$5,600
Dividends	$2,200
Interest expense	$18,500
Notes Payable		$5,200
Prepaid Insurance	$2,700
Retained Insurance		$2,400
Service Revenue		$25,000
Total	$42,200	$42,200

From the perusal of above trial balance it is clear that the total credits in the trail balance is $ 42,200 and thus the correct option in the given question is (d) $ 42,200

Justification:

· Accounts Payable: It is a current liability and thus will have credit balance.

· Accounts Receivable: It is as current asset and thus will have debit balance.

· Cash: It is as current asset and thus will have debit balance.

· Common stock: It is a part of stockholders’ Equity and thus will have a credit balance.

· Dividends: It is an appropriation of profit (being dividend paid) and thus will have debit balance.

· Interest expense: It is an expense and thus will have debit balance.

· Note Payable: It is a liability and thus will have a credit balance.

· Prepaid Insurance: It is a current asset and thus will have a debit balance.

· Retained Insurance: It is a current liability and thus will have a credit balance.

· Service Revenue: It is an items of Income and thus will have a credit balance.