Question

A summary of selected ledger accounts appears below for Solomon’s Electrical Services for the current calendar year-end. Common Stock 12/31 8,500 1/1 90,000 12/31 30,000 Retained Earnings 12/31 5,000 1/1 62,000 12/31 18,000 Dividends 3/31 2,500 12/31 5,000 9/30 2,500 The $18,000 debit to Retained Earnings on December 31 must represent a.net income b.net loss c.sales of common stock d.dividends paid

Answer 1

Answer:

b.net loss

Explanation:

A debit entry in the retained entry account may have two reasons dividend declaration entry and net loss adjustment entry. Form the dividend  account we see there is no dividend entry of $18,000. So the only option is the net loss adjustment entry of $18,000.

Journal Entry for the adjustment is as follow

Dr. Retained Earning $18,000

Cr. Income Summary $18,000