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Natali [406]
3 years ago
10

After posting the entries to close all revenue and expense accounts, the Income Summary account of Cleaver Auto Services has a $

5,900 debit balance. This result implies that Cleaver earned a net income of $5,900.
Business
1 answer:
KATRIN_1 [288]3 years ago
3 0

Answer:

INCORRECT.

In income summary account, all revenue accounts are closed by debiting them and crediting the income summary account. expense accounts are closed by crediting them and debiting income summary account. then on closing income summary account it shows debit balance if there is a net loss and it shows credit balance if there is a net income.

In the given case clever auto services has debit balance of $5,300 i,e it implies that clever auto services has loss .

Therefore above statement is wrong. It implies a loss of $5300 not the net income of $5,300.

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Explanation:

This question is an instance of bonds issued at a discount. This happens when a bond is issued below the face value of the bond and also happens when the coupon rate on the bond payable is less than the market rate.

The face value of the bond payable is $2,000,000 while the market value is $1,864,097, so there is a discount of $2,000,000 - $1,864,097 = $135,903 on the bond payable, which is to be amortized over the life of the bond payable.

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