Question

In: Accounting

The following selected accounts and account balances were taken from the records of Nowell Company. Except...

The following selected accounts and account balances were taken from the records of Nowell Company. Except as otherwise indicated, all balances are as of December 31, Year 2, before the closing entries were recorded.

Consulting revenue $ 10,400
Cash 8,100
Cash received from common stock issued during Year 1 4,000
Travel expense 500
Dividends 1,500
Cash flow from investing activities 2,800
Rent expense 1,100
Payment to reduce debt principal 23,300
Retained earnings, January 1, Year 2 14,600
Salary expense 3,400
Cash flow from operating activities 2,550
Common stock, December 31, Year 2 12,000
Other operating expenses 1,900

Required

a. Prepare the income statement Nowell would include in its Year 2 annual report.

b. Identify the accounts that should be closed to the Retained Earnings account.

c-1. Determine the Retained Earnings account balance at December 31, Year 2.

c-2. Which of the following statement(s) is true?

Solutions

Expert Solution

Answer:

a) Income Statement

Consulting revenue 10400
Less: Expense
Travel expense 500
Rent expense 1100
Salary expense 3400
Other operating expenses 1900
Total expenses (6900)
Net Income 3500

b) Accounts to be closed to Retained Earnings:

Consulting revenue Closed to retained Earnings
Supplies expenses Closed to retained Earnings
Travel expenses Closed to retainedd Earnings
Salaries Payable No
Dividends Closed to retained Earnings
Cash No
Rent expenses Clsoed to retained Earnings
Salary expenses Closed to retained Earnings
Other operating expense Closed to retained Earnings

c-1) Retained Earning, Ending balance

Retained earnings, Year2 14600
Add: net Income 3500
Less: Dividend (1500)
Retained Earnings, Ending Balance 16600

c-2) Correct statements are:

Net Income does not include revenue of thee current year. Unanswered false, since includes current year revenue
Retained earnings does not include current year net income, but only the balance from previous years. Unanswered false, it includes current year net income as well
Retained earnings not only includes current year net income but also the balance from previous years andd reductions for dividneds. Unanswered True
Retained earnings does not include the balance from previous years but only the reductions for dividends. Unanswered false, it includes balance from previous year as well
Net income only includes rvenues and expenses for the current year. Unanswered True

ekkarill92 answered 1 year ago
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