Frosty Inc. has the following balances on December 31 prior to closing entries: $$\begin{array} { | l | r | }
\hline \text { Revenues } & \$ 35,000 \
\hline \text { Retained Earnings, Jan. 1 } & 10,000 \
\hline \text { Cash } & 7,000 \
\hline \text { Expenses } & 23,000 \
\hline \text { Accounts Payable } & 4,000 \
\hline \text { Dividends } & 1,000 \
\hline \text { Supplies } & 18,000 \
\hline
\end{array}$$ Based upon the balances above, what net adjustment would be made to Retained Earnings due to closing entries?

Question

Frosty Inc. has the following balances on December 31 prior to closing entries: $$\begin{array} { | l | r | } 
\hline \text { Revenues } & \$ 35,000 \
\hline \text { Retained Earnings, Jan. 1 } & 10,000 \
\hline \text { Cash } & 7,000 \
\hline \text { Expenses } & 23,000 \
\hline \text { Accounts Payable } & 4,000 \
\hline \text { Dividends } & 1,000 \
\hline \text { Supplies } & 18,000 \
\hline
\end{array}$$ Based upon the balances above, what net adjustment would be made to Retained Earnings due to closing entries?

Quizplus · Accepted Answer

The net income is calculated as Revenues ($35,000) minus Expenses ($23,000), which equals $12,000. Dividends of $1,000 are subtracted from net income to adjust Retained Earnings, resulting in an increase of $11,000.

Frosty Inc Based Upon the Balances Above, What Net Adjustment Would Be