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25 May, 05:55

Frosty Inc. has the following balances on December 31 prior to closing entries: Revenues $ 40,700 Retained Earnings, Jan. 1 9,500 Cash 8,100 Expenses 24,100 Accounts Payable 2,100 Dividends 1,800 Supplies 18,300 Based upon the balances above, what net adjustment would be made to Retained Earnings due to closing entries?

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  1. 25 May, 09:52
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    The Retained Earnings will increase by $14,800 as follows

    $9,500 + $14,800 = $24,300

    Explanation:

    The question is to compute the net adjustment that Frosty Inc will make to Retained earnings due to the closing entries.

    This is calculated as follows

    The Revenue of frosty = $40,700 and from this figure we need to subtract expenses that are related to the current period. A positive difference will automatically mean an increase in retained earnings (this becomes profit) while a negative figure will mean a decrease in the Retained earnings (a loss)

    Ending figure/Balance in the Income Statement = Revenue - Expenses - Dividends

    (Kindly note that other figures; cash, accounts payable and supplies are balance sheet items and not income statement related)

    Ending Balance = $40,700 - $24,100 - $1,800

    = $14,800 (positive or profit)

    Therefore, the Retained Earnings will increase by $14,800 as follows: $9,500 + $14,800

    = $24,300
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