Hot Tamale Company had $120,000 of revenues and $125,000 of expenses. No dividends were paid. The second of the year-end closing entries should include which of the following line items?

Question

Quizplus · Accepted Answer

The second of the year-end closing entries should involve transferring the net income or loss from the Income Summary account to the Retained Earnings account. In this scenario, since the company incurred a loss (expenses were greater than revenues), the Income Summary account should be debited for the amount of the loss ($125,000) and the Retained Earnings account should be credited for the same amount. Therefore, the correct option is to Debit Income Summary $125,000.

Hot Tamale Company Had $120,000 of Revenues and $125,000 of Expenses