The year-end adjustment to recognize one month's work on the three-month contract results in a $2,000 decrease in liabilities (unearned revenue)and an increase in equity (retained earnings due to recognizing revenue).
The following account balances were drawn from the 2016 financial statements of Grayson Company:

-Prior to closing,Syracuse Company's accounting records showed the following balances:

After closing,Syracuse's retained earnings balance would be
A)$16,800.
B)$23,700.
C)$21,000.
D)$26,400.

Question

The year-end adjustment to recognize one month's work on the three-month contract results in a $2,000 decrease in liabilities (unearned revenue)and an increase in equity (retained earnings due to recognizing revenue).
The following account balances were drawn from the 2016 financial statements of Grayson Company:
 
-Prior to closing,Syracuse Company's accounting records showed the following balances:

After closing,Syracuse's retained earnings balance would be
A)$16,800. 
B)$23,700. 
C)$21,000. 
D)$26,400.

Quizplus · Accepted Answer

To calculate the balance of the retained earnings after closing, we need to add the net income to the beginning balance of retained earnings and subtract any dividends paid. 
The net income for 2017 is calculated as follows: 
Revenue ($150,000) - Expenses ($90,000) = Net Income ($60,000)

The beginning balance of retained earnings for Syracuse is $15,000. 
Therefore, the retained earnings balance after closing is calculated as follows: 
Beginning Retained Earnings ($15,000) + Net Income ($60,000) - Dividends ($7,000) = Ending Retained Earnings ($68,000)

Therefore, the answer is C) $21,000.

The Year-End Adjustment to Recognize One Month's Work on the Three-Month