A company's ledger accounts and their end-of-period balances before closing entries are posted are shown below.What amount will be posted to Retained earnings in the process of closing the Income Summary account? (Assume all accounts have normal balances.)
A)$16,780 debit.
B)$7,180 credit.
C)$16,780 credit.
D)$18,280 credit.
E)$23,780 credit.

Question

A company's ledger accounts and their end-of-period balances before closing entries are posted are shown below.What amount will be posted to Retained earnings in the process of closing the Income Summary account? (Assume all accounts have normal balances.) 
A)$16,780 debit. 
B)$7,180 credit. 
C)$16,780 credit. 
D)$18,280 credit. 
E)$23,780 credit.

Quizplus · Accepted Answer

The amount posted to Retained earnings from closing the Income Summary account is equal to the net income/loss for the period. To calculate this, we need to first find the balance in the Income Summary account after posting all of the revenue and expense accounts.

Revenue: $43,400 
Rent expense: $10,900 
Wages expense: $4,800 
Supplies expense: $3,200 
Insurance expense: $1,540 
Depreciation expense: $2,000 
Interest expense: $780 
Income Summary (balancing figure): $20,980 credit

Note that we need to add up all of the revenue accounts and subtract all of the expense accounts to find the balance in the Income Summary account.

The balance in the Income Summary account represents the net income for the period. Since it has a credit balance, this means that the company had a net income of $20,980 for the period. This is the amount that will be posted to Retained earnings in the process of closing the Income Summary account.

Therefore, the correct answer is (C) $16,780 credit.

A Company's Ledger Accounts and Their End-Of-Period Balances Before Closing