Shown below is a trial balance for Novelty Toys, Limited, on December 31, after adjusting entries: $$\begin{array}{c} { \text { Novelty Toys Limited } } \
{ \text { Trial Balance } } \
{ \text { December } 31,20\_ } \\begin{array} { | l | r | r | }

\hline \text { Cash } & \$ 7,750 & \
\hline \text { Accounts receivable } & 6,375 & \
\hline \text { Office equipment } & 11,250 & \
\hline \text { Accumulated Depreciation } & & \$ 3,000 \
\hline \text { Accounts payable } & & 3,875 \
\hline \text { Share Capital } & & 11,250 \
\hline \text { Retained eamings } & & - 0 \
\hline \text { Dividends } & 3,750 & \
\hline \text { Fees Earned } & & 22,750 \
\hline \text { Salaries expense } & 8,000 & \
\hline \text { Advertising expense } & 1,625 & \
\hline \text { Depreciation expense } & 2,125 & \
\hline & \$ 40,875 & \underline { \$ 40,875 } \
\hline
\end{array}\end{array}$$
-Refer to the above data. After closing the accounts, Retained earnings at December 31 equals:

Question

Shown below is a trial balance for Novelty Toys, Limited, on December 31, after adjusting entries: $$\begin{array}{c} { \text { Novelty Toys Limited } } \
{ \text { Trial Balance } } \
 { \text { December } 31,20\_ } \\begin{array} { | l | r | r | }

\hline \text { Cash } & \$ 7,750 & \
\hline \text { Accounts receivable } & 6,375 & \
\hline \text { Office equipment } & 11,250 & \
\hline \text { Accumulated Depreciation } & & \$ 3,000 \
\hline \text { Accounts payable } & & 3,875 \
\hline \text { Share Capital } & & 11,250 \
\hline \text { Retained eamings } & & - 0 \
\hline \text { Dividends } & 3,750 & \
\hline \text { Fees Earned } & & 22,750 \
\hline \text { Salaries expense } & 8,000 & \
\hline \text { Advertising expense } & 1,625 & \
\hline \text { Depreciation expense } & 2,125 & \
\hline & \$ 40,875 & \underline { \$ 40,875 } \
\hline
\end{array}\end{array}$$
-Refer to the above data. After closing the accounts, Retained earnings at December 31 equals:

Quizplus · Accepted Answer

Retained earnings at December 31 can be calculated by subtracting the total of all expenses (including income tax expense) and dividends declared from the total revenues.

Total Revenues: $18,500 (Credit balance in "Sales Revenue" account)
Total Expenses: $8,000 (Debit balance in "Expense" accounts)
- Income Tax Expense: $3,250 (Debit balance in "Income Tax Expense" account)
- Dividends Declared: $2000 (Debit balance in "Dividends" account)

Retained earnings at December 31 = $18,500 - $8,000 - $3,250 - $2,000 = $5,250

Therefore, the correct answer is B.

Shown Below Is a Trial Balance for Novelty Toys, Limited